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The supply and demand for safe assets

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  • Gorton, Gary
  • Ordoñez, Guillermo

Abstract

Safe assets are demanded as stores of value (to smooth consumption inter-temporally) and as collateral (to facilitate credit intra-temporally). Some are supplied publicly (government bonds) and some privately (asset-backed securities). Private assets are heterogeneous in quality, and information about their quality reduces their safety properties. We show that government bonds discourage both production of (crowding quantity out) and information about (crowding safety in) private assets. Hence, the optimal supply of government bonds need to take into account their dual roles and their impact on the quantity and informational content of private assets.

Suggested Citation

  • Gorton, Gary & Ordoñez, Guillermo, 2022. "The supply and demand for safe assets," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 132-147.
    • Handle: RePEc:eee:moneco:v:125:y:2022:i:c:p:132-147
    DOI: 10.1016/j.jmoneco.2021.07.010
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    More about this item

    Keywords

    Government debt; Private safe assets; Stores of value; Collateral;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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