The Safe Assets Shortage Conundrum
Author(s)
Farhi, Emmanuel; Gourinchas, Pierre-Olivier; Caballero, Ricardo J
Downloadjep.31.3.29.pdf (1.434Mb)
PUBLISHER_POLICY
Publisher Policy
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
Terms of use
Metadata
Show full item recordAbstract
A safe asset is a simple debt instrument that is expected to preserve its value during adverse systemic events. The supply of safe assets, private and public, has historically been concentrated in a small number of advanced economies, most prominently the United States. Over the last few decades, with minor cyclical interruptions, the supply of safe assets has not kept up with global demand. The reason is straightforward: the collective growth rate of the advanced economies that produce safe assets has been lower than the world's growth rate, which has been driven disproportionately by the high growth rate of high-saving emerging economies such as China. The signature of this growing shortage is a steady increase in the price of safe assets; equivalently, global safe interest rates must decline, as has been the case since the 1980s. The early literature, brought to light by Ben Bernanke's famous "savings glut" speech of 2005, focused on a general shortage of assets without isolating its safe asset component. The distinction, however, has become increasingly important over time, particularly in the aftermath of the subprime mortgage crisis and its sequels. We begin by describing the main facts and macroeconomic implications of safe asset shortages. Faced with such a structural conundrum, what are the likely short- to medium-term escape valves? We analyze four of them, each with its own macroeconomic and financial trade-offs.
Date issued
2017-08Department
Massachusetts Institute of Technology. Department of EconomicsJournal
Journal of Economic Perspectives
Publisher
American Economic Association
Citation
Caballero, Ricardo J. et al. “The Safe Assets Shortage Conundrum.” Journal of Economic Perspectives 31, 3 (August 2017): 29–46 © 2017 American Economic Association
Version: Final published version
ISSN
0895-3309