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A Portfolio Approach to Global Imbalances

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  • ZHENGYANG JIANG
  • ROBERT J. RICHMOND
  • TONY ZHANG

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.

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  • Zhengyang Jiang & Robert J. Richmond & Tony Zhang, 2024. "A Portfolio Approach to Global Imbalances," Journal of Finance, American Finance Association, vol. 79(3), pages 2025-2076, June.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:3:p:2025-2076
    DOI: 10.1111/jofi.13333
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