Exorbitant Privilege Gained and Lost: Fiscal Implications

Zefeng Chen, Zhengyang Jiang, Hanno N. Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan
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Zefeng Chen: Peking University
Zhengyang Jiang: Kellogg School of Management - Department of Finance; National Bureau of Economic Research
Hanno N. Lustig: Stanford Graduate School of Business; National Bureau of Economic Research

Research Papers from Stanford University, Graduate School of Business

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. 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.

JEL-codes: G12 H63 (search for similar items in EconPapers)
Date: 2022-04
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Exorbitant Privilege Gained and Lost: Fiscal Implications (2022)
Working Paper: Exorbitant Privilege Gained and Lost: Fiscal Implications (2022)
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