The End of Privilege: Re-examining the US Net Foreign Asset Position

• Department of Economics

In this seminar, Jonathan Heathcote will present the paper: "The End of Privilege: Reexamining the US Net Foreign Asset Position".

The U.S. net foreign asset position has deteriorated sharply since 2007 and is currently negative 65 percent of U.S. 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 U.S.-specific has inflated the value of U.S. equity liabilities to the rest of the world. We develop an international macro finance model of flows, stocks, and valuation of the U.S. corporate sector and the current account and net foreign asset position of the United States to interpret these trends. We find that the welfare impact of these trends on a representative U.S. household has been quite negative given the large share of U.S. equity owned by foreign investors.

Co-authors Andrew Atkeson (UCLA) and Fabrizio Perri (Federal Reserve Bank of Minneapolis)