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Safe Assets as Commodity Money

Author

Listed:
  • Maya Eden

    (World Bank
    Office of Financial Research)

  • Benjamin Kay

    (Office of Financial Research)

Abstract

This paper presents a model in which safe assets are systemic because they are the medium of exchange for risky assets. Like commodity money, these assets are costly to produce and have some intrinsic value, resulting in (a) non-neutrality and (b) overproduction. Quantitatively, the welfare consequences of these inefficiencies depend on the costs of producing safe assets, which can be inferred from the equilibrium value of the liquidity premium. When the model is calibrated to plausible liquidity premia the resulting inefficiencies are not large.

Suggested Citation

  • Maya Eden & Benjamin Kay, 2015. "Safe Assets as Commodity Money," Working Papers 15-23, Office of Financial Research, US Department of the Treasury.
    • Handle: RePEc:ofr:wpaper:15-23
    as

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    References listed on IDEAS

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    Cited by:

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