Foreign Ownership of U.S. Safe Assets: Good or Bad?

Jack Favilukis, Sydney C. Ludvigson, Stijn Van Nieuwerburgh

NBER Working Paper No. 19917
Issued in February 2014
NBER Program(s):   AP   EFG   IFM

The last 20 years have been marked by a sharp rise in international demand for U.S. reserve assets, or safe stores-of-value. What are the welfare consequences to U.S. households of these trends, or of a reversal? In a lifecycle model with aggregate and idiosyncratic risks, the young and oldest households may benefit substantially from such capital inflows, but middle-aged savers may suffer from greater exposure to systematic risk in equity and housing markets. Under the veil of ignorance, a newborn in the lowest wealth quantile is willing to forego 2.7% of lifetime consumption to avoid a large capital outflow.

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This paper was revised on September 19, 2014

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19917

Forthcoming: Foreign Ownership of U.S. Safe Assets: Good or Bad?, Jack Favilukis, Sydney C. Ludvigson, Stijn Van Nieuwerburgh. in Sovereign Debt and Financial Crisis, Kalemli-Ozcan, Reinhart, and Rogoff. 2016

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