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Supply of Sovereign Safe Assets and Global Interest Rates

Thiago Revil T. Ferreira and Samer Shousha ()
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Thiago Revil T. Ferreira: https://www.federalreserve.gov/econres/thiago-r-t-ferreira.htm

No 1315, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We estimate that the supply of sovereign safe assets is a major driver of neutral interest rates--real rates consistent with both economic activity and inflation at their trends. We find this result using an empirical cross-country model with many economic drivers for the neutral rates of 11 advanced economies during the 1960-2019 period. The increasing availability of safe assets after 2008 has pushed up neutral rates, preventing them from continuing their previous decline because of other drivers. We also evaluate the "global savings glut" hypothesis. We estimate that since 1994 the global accumulation of international exchange reserves in safe assets has lowered the availability of these assets to the private sector and, thus pushed down neutral rates. Finally, we find that economies' neutral rates are subject to important global spillovers from developments in other economies.

Keywords: neutral interest rates; Safe assets; International reserves; global savings glut (search for similar items in EconPapers)
JEL-codes: E21 E43 E52 (search for similar items in EconPapers)
Date: 2021-04-30
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1315

DOI: 10.17016/IFDP.2021.1315

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