The safe asset frontier

Kartik Anand and Prasanna Gai

New Zealand Economic Papers, 2021, vol. 55, issue 2, 155-165

Abstract: We identify the frontier between safe and unsafe assets and show how the growth rate of the economy and its fiscal capacity interact with differences of opinion amongst investors to determine the safe asset equilibrium. Multiple equilibria emerge in our set-up due to strategic complementarities across counterparties, and the safety of the bond depends on the extent to which investors' opinions diverge from the credit rating of the asset.

Date: 2021
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DOI: 10.1080/00779954.2019.1688469

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