Seeking Safety

Toni Ahnert and Enrico Perotti

Staff Working Papers from Bank of Canada

Abstract: The scale of safe assets suggests a structural demand for a safe wealth share beyond transaction and liquidity roles. We study how investors achieve a reference wealth level by combining self-insurance and contingent liquidation of investment. Intermediaries improve upon autarky, insuring investors with poor self-insurance and limiting liquidation. However, delegation creates a conflict in states with residual risk. Demandable debt ensures safety-seeking investors can withdraw to implement a safe outcome, so private safety provision is fragile. Public debt crowds out private credit supply and investment, while deposit insurance crowds them in by reducing liquidation in residual risk states.

Keywords: Financial; Institutions (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2018
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:18-41

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