Firm volatilities comove strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers, and customer-supplier links depend on customers’ size. The model produces distributions of firm volatility, size, and customer concentration consistent with the data.

We study three centuries of fiscal history. Dominant safe asset suppliers issue more debt than future primary surpluses can justify, even after accounting for seigniorage revenue from convenience yields. This pattern holds for the Dutch Republic (seventeenth to eighteenth centuries), the United Kingdom (eighteenth to nineteenth centuries), and the United States (twentieth to twenty-first centuries). When Dutch and UK fiscal fundamentals deteriorated, they lost their dominant position as the safe asset supplier, and their debt became fully backed by primary surpluses. Exorbitant privilege stems from issuing overpriced debt in the early stage, followed by bondholder losses and financial repression in the later stage.