Safe Assets as Commodity Money

Maya Eden () and Benjamin Kay ()
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Benjamin Kay: Office of Financial Research

No 15-23, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: This paper presents a model in which safe assets are systemic because they are the medium of exchange for risky assets. Like commodity money, these assets are costly to produce and have some intrinsic value, resulting in (a) non-neutrality and (b) overproduction. Quantitatively, the welfare consequences of these inefficiencies depend on the costs of producing safe assets, which can be inferred from the equilibrium value of the liquidity premium. When the model is calibrated to plausible liquidity premia the resulting inefficiencies are not large.

Keywords: Safe Assets; Liquidity Premium; Commodity Money; Medium of Exchange (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-11-25
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Citations: View citations in EconPapers (1)

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