Working Paper: NBER ID: w22210
Authors: Gary B. Gorton
Abstract: Safe assets play a critical role in an(y) economy. A “safe asset” is an asset that is (almost always) valued at face value without expensive and prolonged analysis. That is, by design there is no benefit to producing (private) information about its value. And this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can easily be used to exchange for goods or services or to exchange for another asset. These short-term safe assets are money or money-like. A long-term safe asset can store value over time or be used as collateral. Human history can be written in terms of the search for and production of safe assets. But, the most prevalent, privately-produced short-term safe assets—bank debt, are subject to runs and this has important implications for macroeconomics and for monetary policy.
Keywords: No keywords provided
JEL Codes: E3; E4; E5; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| availability of safe assets (G19) | financial crises (G01) |
| credit booms (F65) | financial crises (G01) |
| shortage of safe government debt (H63) | privately produced safe debt (H63) |
| decline of government-insured demand deposits (G28) | rise in short-term wholesale funding (F65) |
| availability of safe assets (G19) | need for costly information production (D83) |
| supply of safe assets (E41) | creation of substitutes by private sector (H44) |
| insufficient safe government debt (H63) | credit boom (F65) |