Welcome to Higher Seminar in Economics organised by the Department of Economics, SSE. The seminar speaker is Jonathan Heathcote, monetary advisor in the Research Department of the Federal Reserve Bank of Minneapolis. Jonathan will present a paper called "The End of Privilege" co-authored with Andrew Atkeson and Fabizio Perri. 

Jonathan Heathcote, Federal Reserve Bank of Minneapolis

Personal webpage

"The End of Privilege"

ABSTRACT: The US net foreign asset position has deteriorated sharply in the past decade, and now stands at an unprecedented negative 65 percent of US GDP. What has driven this decline, and what are the welfare consequences for US households? We show that new borrowing accounts for only a small share of the decline, while the majority reflects revaluation of large gross positions. In particular, the US has large equity and FDI liabilities, and the sharp runup in US asset values over the past decade has inflated the value of these liabilities.

Our preferred theory for the sharp rise in US equity values over the past decade is that US firms have become more profitable. We build and calibrate a simple international macro finance model, in which profits reflect monopolistic pricing power. In the context of this model, we show that the welfare costs of a rise in US markups are highly sensitive to the amount of international equity diversification. Given the levels of diversification observed in the past decade, a rise in US markups that rationalizes the differential dynamics of US versus rest of world asset prices is more than five times as costly as a similar increase in markups would have been under complete home bias in equity holdings.

This is an online seminar which will take place via Zoom. The link to the seminar will be distrubted by invitation only. Please contact lyudmila.vafaeva@hhs.se if you would like to attend the seminar.