Comment on Lane and Milesi-Ferretti “Long-Term Capital Movements”

In 1985, US statistics showed that the net international investment position turned negative for the first time since World War I. In 1989, the US net international investment position again turned negative for the first time since World War I. How is that possible? In the meantime, a revision had raised the valuation of US assets overseas, by recognizing, for example, increased prices of capital assets acquired in the distant past. This revision was large enough to restore America’s net creditor status, though only temporarily. The magnitude of this revision is one indicator of how large the measurement errors in these data are, or at least how bad they have been in the past, which in turn is one reason why they have been so little used. The worldwide discrepancy is another tangible illustration of the problem.