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

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  • Jack Favilukis
  • Sydney C. Ludvigson
  • Stijn Van Nieuwerburgh

Abstract

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.

Suggested Citation

  • Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2014. "Foreign Ownership of U.S. Safe Assets: Good or Bad?," NBER Working Papers 19917, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19917
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    Cited by:

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    2. Hansen, James & Gross, Isaac, 2018. "Commodity price volatility with endogenous natural resources," European Economic Review, Elsevier, vol. 101(C), pages 157-180.
    3. Francois John Nana, 2020. "Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-28, January.
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    5. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.
    6. Liu, Yang, 2023. "Government debt and risk premia," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 18-34.

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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