Advocates of fair value accounting believe that fair valuesprovide more relevant measures of assets, liabilities, andearnings than do historical costs. These advocates assertthat fair value accounting better reflects underlying economicvalues. The advantages of this method—and thecorresponding...

This paper analyzes a useful accounting framework that breaks down the current account to twocomponents: a composition effect and a growth effect.We show that past empirical evidence, which stronglysupports the growth effect as the main driver of current account dynamics, is misconceived. The...