Exorbitant Privilege and the Sustainability of US Public Debt

Jason Choi, Duong Q. Dang, Rishabh Kirpalani and Diego J. Perez

No 32129, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the extent to which the perceived cost of losing the exorbitant privilege the US holds in global safe asset markets sustains the safety of its public debt. Our findings indicate that the loss of this special status in the event of a default significantly augments the debt capacity for the US. Debt levels would be up to 30% lower if the US did not have this special status. Most of this extra debt capacity arises from the loss of the convenience yield on US Treasuries, which makes debt more expensive following its loss and provides strong incentives to repay debt.

JEL-codes: F0 F34 (search for similar items in EconPapers)
Date: 2024-02
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Published as Jason Choi & Duong Dang & Rishabh Kirpalani & Diego J. Perez, 2024. "Exorbitant Privilege and the Sustainability of US Public Debt," AEA Papers and Proceedings, vol 114, pages 143-147.

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