A Portfolio Approach to Global Imbalances

Zhengyang Jiang, Robert J. Richmond*, Tony Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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 U.S. 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 line 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.

Original languageEnglish (US)
Pages (from-to)2025-2076
Number of pages52
JournalJournal of Finance
Volume79
Issue number3
DOIs
StatePublished - Jun 2024

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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