However, Federal Reserve staff have used survey data for the underlying cross-border positions to show that these “other adjustments” are not hidden capital gains but instead arise from imprecision in the measurement of a number of balance of payments flows and cross-border positions.
As such, the returns advantage in favor of U.S. investments is, in fact, half the size claimed by proponents of “exorbitant privilege” and is well in line with the BEA's published data. As with the first, the key to resolving the second puzzle lies in differences in portfolio returns, composition, and size.