Exorbitant Privilege Gained and Lost: Fiscal Implications

Zefeng Chen, Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan

No 17340, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study three centuries of U.K. fiscal history. Before WW-I, when the U.K. dominated global bond markets, the U.K.'s government debt was not always fully backed by its future surpluses, even after accounting for the seigniorage revenue from convenience yields. As predicted by theories of safe asset determination, investors concentrate extra fiscal capacity in a single country, the global safe asset supplier, based on relative macro fundamentals, and its debt growth may temporarily outstrip what is warranted by its own macro fundamentals. After the relative deterioration in U.K. fundamentals, due to the run-up in debt during WW-I and WW-II, bond investors focused exclusively on the U.K's own macro fundamentals. Since then the U.K. debt has been fully backed by surpluses.

Keywords: Fiscal; policy (search for similar items in EconPapers)
JEL-codes: E62 G12 (search for similar items in EconPapers)
Date: 2022-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP17340 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Exorbitant Privilege Gained and Lost: Fiscal Implications (2022)
Working Paper: Exorbitant Privilege Gained and Lost: Fiscal Implications (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:17340

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP17340

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().