AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Exorbitant Privilege and the Sustainability of US Public Debt
AEA Papers and Proceedings
vol. 114,
May 2024
(pp. 143–47)
Abstract
We study the extent to which the perceived cost of losing the exorbitant privilege the United States holds in global safe asset markets sustains its public debt safety. Our findings indicate that losing this special status in the event of a default significantly augments the debt capacity for the United States. Debt levels would be up to 30 percent lower if the United States did not have this special status. Most of this extra debt capacity arises from the loss of convenience yields on Treasuries, which makes debt more expensive following its loss, providing strong incentives to repay debt.Citation
Choi, Jason, Duong Dang, Rishabh Kirpalani, and Diego J. Perez. 2024. "Exorbitant Privilege and the Sustainability of US Public Debt." AEA Papers and Proceedings, 114: 143–47. DOI: 10.1257/pandp.20241067Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- H63 National Debt; Debt Management; Sovereign Debt