Exorbitant Privilege and Exorbitant Duty

Pierre-Olivier Gourinchas and Helene Rey

No 16944, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide a quarterly time series of the historical evolution of US external assets and liabilities at market value on the 1952-2016 period. The center country of the International Monetary System enjoys an “exorbitant privilege†, a sizeable excess return of gross external assets over liabilities that significantly weakens its external constraint. In exchange for this “exorbitant privilege†we document that the US provides insurance to the rest of the world, especially in times of global stress. We call this the “exorbitant duty†of the hegemon. During the 2007-2009 global financial crisis, wealth transfers from the US to the rest of the world amounted to about 20% of US GDP and the dollar appreciated by 8% in real terms. We present a stylized model that accounts for these facts and also links the shrinking size of the hegemon in the world economy to the decline in the world real rate of interest.

Date: 2022-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16944 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Exorbitant Privilege and Exorbitant Duty (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:16944

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16944

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().