A Portfolio Approach to Global Imbalances

78 Pages Posted: 19 Jan 2021 Last revised: 8 Jun 2022

See all articles by Zhengyang Jiang

Zhengyang Jiang

Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Robert Richmond

New York University (NYU) - Department of Finance

Tony Zhang

Board of Governors of the Federal Reserve System

Date Written: March 7, 2020

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.

Keywords: Capital flows, global imbalances, savings glut, monetary policy

Suggested Citation

Jiang, Zhengyang and Richmond, Robert and Zhang, Tony, A Portfolio Approach to Global Imbalances (March 7, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3744340 or http://dx.doi.org/10.2139/ssrn.3744340

Zhengyang Jiang (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://sites.google.com/site/jayzedwye/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Robert Richmond

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Tony Zhang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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