The supply and demand for safe assets

Gary Gorton and Guillermo Ordonez

Journal of Monetary Economics, 2022, vol. 125, issue C, 132-147

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.

Keywords: Government debt; Private safe assets; Stores of value; Collateral (search for similar items in EconPapers)
JEL-codes: E41 E44 E58 H63 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: The Supply and Demand for Safe Assets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:125:y:2022:i:c:p:132-147

DOI: 10.1016/j.jmoneco.2021.07.010

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