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G7 Current Account Imbalances$
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Richard H. Clarida

Print publication date: 2007

Print ISBN-13: 9780226107264

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226107288.001.0001

From World Banker to World Venture Capitalist

U.S. External Adjustment and the Exorbitant Privilege

Chapter:
(p.11) 1 From World Banker to World Venture Capitalist
Source:
G7 Current Account Imbalances
Author(s):

Pierre-Olivier Gourinchas

Hélène Rey

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226107288.003.0002

This chapter investigates the historical evolution of U.S. external assets and liabilities at market value since 1952. It shows strong evidence of a sizeable excess return of gross assets over gross liabilities. It also demonstrates that the United States tends to borrow short and lend long. It supports the notion that the United States enjoyed a significant premium on its gross assets relative to its liabilities and that this premium has been increasing since the collapse of the Bretton Woods fixed exchange rate system. The collapse of Bretton Woods has not deprived the United States of its fundamental role as world liquidity provider. It is found that depreciations are associated with significantly larger returns on gross assets and lower returns on gross liabilities. Furthermore, while the United States is still some ways away from making net payments on its mounting stock of net liabilities, that moment is approaching.

Keywords:   external assets, gross liabilities, market value, United States, gross assets, Bretton Woods, fixed exchange rate, liquidity provider

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