Sectoral Dynamics of Safe Assets in Advanced Economies

Madalen Castells-Jauregui, Björn Richter, Dmitry Kuvshinov and Victoria Vanasco

No 1438, Working Papers from Barcelona School of Economics

Abstract: What is the sectoral composition of the market for safety, and does it matter for economic stability? To address these questions, we construct a novel dataset of sectoral safe asset positions in 21 advanced economies since 1980. In almost every country, safe assets have grown considerably relative to GDP, while maintaining a stable "safe-asset share" relative to total financial assets. We find that safe-asset fluctuations are almost exclusively driven by the foreign and financial sectors—who are, respectively, the key marginal buyers and issuers of safe assets—with the real and public sectors playing a muted role. Moreover, increases in safe asset demand by foreigners (raw, and instrumented using emerging- market FX holdings)—or its counterpart, the supply by financials—are associated with expansions in domestic risky credit and lower medium-term output growth. Our results suggest that advanced economies have been increasingly intermediating safety within and across borders, with potentially adverse effects on their economic stability.

Keywords: Business cycles; financial stability; Capital flows; safe assets; financial accounts (search for similar items in EconPapers)
JEL-codes: E42 E44 E51 F33 F34 G15 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Sectoral dynamics of safe assets in advanced economies (2024)
Working Paper: Sectoral dynamics of safe assets in advanced economies (2024)
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