Working Paper: NBER ID: w17777
Authors: Gary B. Gorton; Stefan Lewellen; Andrew Metrick
Abstract: We document that the percentage of all U.S. assets that are "safe" has remained stable at about 33 percent since 1952. This stable ratio is a rare example of calm in a rapidly changing financial world. Over the same time period, the ratio of U.S. assets to GDP has increased by a factor of 2.5, and the main supplier of safe financial debt has shifted from commercial banks to the "shadow banking system." We analyze this pattern of stylized facts and offer some tentative conclusions about the composition of the safe-asset share and its role within the overall economy.
Keywords: safe assets; shadow banking; financial stability
JEL Codes: E02; E41; E44; E52; G2; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stability of the safe asset share (G12) | demand for information-insensitive debt (E41) |
| total assets (G19) | percentage of safe assets in the U.S. economy (E44) |
| emergence of shadow banking (F65) | production of safe financial debt (G21) |
| government liabilities decrease (H69) | financial liabilities increase (G32) |
| demand for safe debt exceeds supply of U.S. Treasuries (H63) | private sector production of substitutes for government debt (H63) |