NBER Working Paper – A Portfolio Approach to Global Imbalances

Author(s):
Zhengyang Jiang, Robert J. Richmond and Tony Zhang

Date:
July 2022

Abstract:

We use a portfolio-based framework to understand what drives the decline of the U.S. net foreign asset (NFA) position and the reversal in returns earned on the US NFA (exorbitant privilege). We show that global savings gluts and monetary policies widened the U.S. NFA position, while investor demand shifts partially offset this widening. Moreover, U.S. privilege declined after 2010, in accordance with increasing foreign demand for U.S. equity. We also highlight a quantity dimension of the U.S. privilege: the U.S. can issue substantially more debt than other countries for a given yield increase.


Link:
A Portfolio Approach to Global Imbalances