Working Paper: CEPR ID: DP17268
Authors: Fabrizio Perri; Andrew Atkeson; Jonathan Heathcote
Abstract: The US net foreign asset position has deteriorated sharply since 2007 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 we 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.
Keywords: current account; equity markets; global imbalances
JEL Codes: F30; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising equity prices (G12) | deteriorating NFA position (D50) |
| rising equity prices (G12) | increase in profitability of domestic firms (F23) |
| increase in profitability of domestic firms (F23) | deteriorating NFA position (D50) |
| changes in domestic equity valuation (G12) | shifts in output distribution (D39) |
| deteriorating NFA position (D50) | large unanticipated transfers of US output to foreign investors (F32) |