NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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, Revised in September 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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Document Object Identifier (DOI): 10.3386/w19917

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