A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy / Ricardo J. Caballero, Emmanuel Farhi.

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Caballero, Ricardo J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18737.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with conventional liquidity traps, but also exhibit important differences, in particular with respect to their reaction to policy packages. In general, policy-puts (such as QE1, LTRO, fiscal policy, etc.) that support future bad states of the economy play a central role in the SAM environment, while policy-calls that support the good states of the recovery (e.g., some aspects of forward guidance) are less powerful. Public debt plays a central role in SAM as long as the government has spare fiscal capacity to back safe asset production.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w18737 (Browse shelf(Opens below))	Not For Loan

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January 2013.

The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with conventional liquidity traps, but also exhibit important differences, in particular with respect to their reaction to policy packages. In general, policy-puts (such as QE1, LTRO, fiscal policy, etc.) that support future bad states of the economy play a central role in the SAM environment, while policy-calls that support the good states of the recovery (e.g., some aspects of forward guidance) are less powerful. Public debt plays a central role in SAM as long as the government has spare fiscal capacity to back safe asset production.