NBER

Ruth A. Judson

Global Financial Flows Section,
International Finance
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Tel: (202) 736-5612

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Federal Reserve System [FRS]

NBER Working Papers and Publications

April 2020Elusive Safety: The New Geography of Capital Flows and Risk
with Laura Alfaro, Ester Faia, Tim Schmidt-Eisenlohr: w27048
Using a unique confidential data set with industry disaggregation of official U.S. claims and liabilities, we find that dollar-denominated securities are increasingly intermediated by tax havens financial centers (THFC) and by less regulated funds. These securities are risky and respond to tax rates and prudential regulations, suggesting tax avoidance and regulatory arbitrage. Issuers are mostly intangible-intensive multinationals, investors require a high Sharpe ratio, suggesting search for yield. In contrast, safe treasuries are mainly held by the foreign offcial sector and increased with quantitative easing policies. Facts on privately held securities are rationalized through a model where multinationals with heterogeneous default probabilities endogenously choose to shift profits and a...

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