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 language | English (US) |
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Pages (from-to) | 2025-2076 |
Number of pages | 52 |
Journal | Journal of Finance |
Volume | 79 |
Issue number | 3 |
DOIs | |
State | Published - Jun 2024 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics