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Author:Thomas, Charles P. 

Journal Article
U. S. international transactions in 1986

Federal Reserve Bulletin , Issue May , Pages 321-329

Working Paper
Using external sustainability to forecast the dollar

The sizable run-up in U.S. external debt over the 1980s has prompted many to ask whether continued current account deficits of the magnitude witnessed can be sustained. In several recent papers, different authors have concluded that a given path of the dollar is unsustainable. The conclusion drawn in these earlier papers does not allow for the substantial uncertainty that surrounds this issue, however. There is uncertainty about the estimated model of the U.S. current account that is used to generate the net demand for foreign assets for a given path of the dollar, about the preferences of ...
International Finance Discussion Papers , Paper 398

Working Paper
How long can the unsustainable U.S. current account deficit be sustained?

This paper addresses three questions about the prospects for the U.S. current account deficit. Is it sustainable in the long term? If not, how long will it take for measures of external debt and debt service to reach levels that could prompt some pullback by global investors? And if and when such levels are breached, how readily would asset prices respond and the current account start to narrow? ; To address these questions, we start with projections of a detailed partial-equilibrium model of the U.S. balance of payments. Based on plausible assumptions of the key drivers of the U.S. external ...
International Finance Discussion Papers , Paper 935

Working Paper
The Performance of International Equity Portfolios

This paper evaluates the performance of U.S. investors' portfolios in the equities of over 40 countries over a 25-year period. We find that these portfolios achieved a significantly higher Sharpe ratio than foreign benchmarks, especially since 1990. We uncover three potential reasons for this success. First, U.S. investors abstained from momentum trading and instead sold past winners. Second, conditional performance tests provide no evidence that the superior (unconditional) performance owed to private information, suggesting that the successful exploitation of publicly available information ...
International Finance Discussion Papers , Paper 817

Working Paper
The return on U.S. direct investment at home and abroad

A longstanding puzzle is that the United States is a net borrower from the rest of the world, yet continues to receive income on its external position. A large difference between the yields on direct investment at home and abroad is responsible and this paper examines potential explanations for this differential. We find that most of the differential disappears after one adjusts for the U.S. taxes owed by the parent on foreign earnings, the sovereign risk and sunk costs associated with investing abroad, and the age of foreign direct investment in the U.S.. Taken together, our results suggest ...
International Finance Discussion Papers , Paper 1057

Working Paper
War and peace: recovering the market's probability distribution of crude oil futures prices during the Gulf crisis

This paper investigates the market's expectations for oil prices during the Persian Gulf crisis. To do so a general method for using options markets to recover the implied distribution for futures prices is developed. The method applies to a wide class of distributions. In particular, it is not limited to those distributions arising from diffusion or jump-diffusion processes.
International Finance Discussion Papers , Paper 437

Working Paper
The sovereignty option: the Quebec referendum and market views on the Canadian dollar

We use exchange traded options on Canadian dollar futures to estimate the market's risk-neutral distribution for the Canadian dollar in the days before and after the Quebec sovereignty referendum. We employ a relatively new technique that places little a priori structure on the estimated distribution. This lack of structure allows the estimated distribution to reflect the multi-modal nature of expectations associated with the referendum's results. The technique is especially suited to circumstances in which a particular event will reduce a large degree of uncertainty prior to the expiration ...
International Finance Discussion Papers , Paper 555

Working Paper
Current account sustainability and relative reliability

The sustainability of the large and persistent U.S. current account deficits is one of the biggest issues currently being confronted by international macroeconomists. Some very plausible theories suggest that the substantial global imbalances can continue in a benign manner, other equally plausible theories predict a disorderly resolution, and in general it is very difficult to discern between competing theories. To inform the debates, we view competing theories through the perspective of the relative reliability of the data the theories rely on. Our analysis of the dark matter theory is ...
International Finance Discussion Papers , Paper 947

Working Paper
U.S. international equity investment and past prospective returns

Counter to extant stylized facts, using newly available data on country allocations in U.S. investors' foreign equity portfolios we find that (i) U.S. investors do not exhibit returns-chasing behavior, but, consistent with partial portfolio rebalancing, tend to sell past winners; and (ii) U.S. investors increase portfolio weights on a country's equity market just prior to its strong performance, behavior inconsistent with an informational disadvantage. Over the past two decades, U.S. investors' foreign equity portfolios outperformed a value-weighted foreign benchmark by 160 basis points per ...
International Finance Discussion Papers , Paper 1016

Working Paper
Uncovered Equity Parity and Rebalancing in International Portfolios

Portfolio rebalancing is a key driver of the Uncovered Equity Parity (UEP) condition. According to UEP, when foreign equity holdings outperform domestic holdings, domestic investors are exposed to higher exchange rate exposure and hence repatriate some of the foreign equity to decrease their exchange rate risk. By doing so, foreign currency is sold, leading to foreign currency depreciation. We examine the relationship between U.S. investors' portfolio reallocations and returns and find some evidence consistent with UEP: Portfolio shifts are related to past returns in the underlying equity ...
International Finance Discussion Papers , Paper 1103

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