International Economics and Geopolitics Seminar with Hélène Rey (London Business School)
Exorbitant Privilege and Exorbitant Duty
The Columbia International Economics & Geopolitics Seminar, organized by Jeff Frieden and Alan Taylor and supported by the Center for Political Economy, the Insitute for Global Politics, and the Institute for Social and Economic Research and Policy (ISERP), is pleased to host Hélène Rey (London Business School) to present a work in progress entitled "Exorbitant Privilege and Exorbitant Duty."
Abstract:
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, there were important wealth transfers from the US to the rest of the world and the dollar appreciated in real terms. We present a model that accounts for these facts and links the shrinking size of the hegemon in the world economy to the decline in the world real rate of interest.
