The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States
The US net foreign asset position has deteriorated sharply in the years following the Global Financial Crisis and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and argue that the rise in equity prices in the United States likely reflects rising profitability of domestic firms rather than a substantial accumulation of unmeasured capital by those firms. Under that interpretation, the revaluation effects that have driven down the US net foreign asset position are associated with large unanticipated transfers of US output to foreign investors.
The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. We thank Dan Greenwald, Gianluca Benigno, Robert Barro, John Cochrane, Pierre-Olivier Gourinchas, Matteo Maggiori, Hanno Lustig, Thomas Philippon, Stephanie Curcuru and Carol Bertaut for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.