The Supply and Demand for Safe Assets / Gary B. Gorton, Guillermo Ordoñez.

By:

Gorton, Gary B

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18732.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: Safe assets are demanded to smooth consumption across states (both intertemporally and in cross-section). Some of these assets are supplied publicly (government bonds) and some are created and supplied privately (such as mortgagebacked securities and asset-backed securities). Private assets are created endogenously when the supply of government bonds is low. Private assets are used as collateral and come in heterogeneous quality. Financial fragility is the probability that a large amount of private assets are examined, some are found to be of low quality and then some firms cannot get loans. We characterize the government's optimal supply of government bonds when considering their effects on the creation of private assets and on economy-wide fragility. We show that monetary and macroprudential policies cannot be run in isolation. When there are too many private assets the government should operate a Bond Exchange Facility that exchanges private assets for public safe assets.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w18732 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

January 2013.

Safe assets are demanded to smooth consumption across states (both intertemporally and in cross-section). Some of these assets are supplied publicly (government bonds) and some are created and supplied privately (such as mortgagebacked securities and asset-backed securities). Private assets are created endogenously when the supply of government bonds is low. Private assets are used as collateral and come in heterogeneous quality. Financial fragility is the probability that a large amount of private assets are examined, some are found to be of low quality and then some firms cannot get loans. We characterize the government's optimal supply of government bonds when considering their effects on the creation of private assets and on economy-wide fragility. We show that monetary and macroprudential policies cannot be run in isolation. When there are too many private assets the government should operate a Bond Exchange Facility that exchanges private assets for public safe assets.