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The supply of 'safe' assets and fiscal policy

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  • Schuknecht, Ludger

Abstract

This study looks at the interrelationship between fiscal policy and safe assets as there is surprisingly little analysis about this beyond fleeting references. The study argues that from a certain point more public debt will not "buy" more safety: countries face a kind of "safe-assets Laffer curve" with a maximum amount of safe assets at some level of indebtedness. The position and "stability" of this curve depend on a number of national and international factors, including the international risk appetite and, as a more recent factor, QE policies by central banks. The study also finds evidence of declining safe assets as reflected in government debt ratings.

Suggested Citation

  • Schuknecht, Ludger, 2016. "The supply of 'safe' assets and fiscal policy," CFS Working Paper Series 532, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:532
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    Cited by:

    1. Ludger Schuknecht, 2019. "Fiscal-Financial Vulnerabilities," CESifo Working Paper Series 7776, CESifo.
    2. António Afonso & Ludger Schuknecht, 2019. "How “big” should government be?," EconPol Working Paper 23, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Antonio Afonso & Ludger Schuknecht, 2019. "How “big†should government be?," Economics and Business Letters, Oviedo University Press, vol. 8(2), pages 85-96.

    More about this item

    Keywords

    fiscal policy; public debt; safe assets; financial markets;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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