The shortage of safe assets in the US investment portfolio: Some international evidence

Florian Huber and Maria Teresa Punzi

Journal of International Money and Finance, 2017, vol. 74, issue C, 318-336

Abstract: This paper develops a Bayesian Global VAR (GVAR) model to track the international transmission dynamics of two stylized shocks, namely a supply and demand shock to US-based safe assets. Our main findings can be summarized as follows. First, we find that (positive) supply-sided shocks lead to pronounced increases in economic activity which spills over to foreign countries. The impact of supply-sided shocks can also be seen for other quantities of interest, most notably equity prices and exchange rates in Europe. Second, a demand-sided shock leads to an appreciation of the US dollar and generally lower yields on US securities, forcing investors to shift their portfolios towards foreign fixed income securities. This yields sizable positive effects on US output, equity prices and a general decrease in financial market volatility.

Keywords: Safe assets; Zero lower bound; Treasury bonds; Shortage; Global VAR (search for similar items in EconPapers)
JEL-codes: C32 E23 E32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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Working Paper: The shortage of safe assets in the US investment portfolio: Some international evidence (2017)
Working Paper: The shortage of safe assets in the US investment portfolio: Some international evidence (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:74:y:2017:i:c:p:318-336

DOI: 10.1016/j.jimonfin.2017.02.023

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