Safe Assets as Commodity Money

30 Pages Posted: 11 Oct 2015

See all articles by Benjamin S. Kay

Benjamin S. Kay

Board of Governors of the Federal Reserve System

Maya Eden

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: October 8, 2015

Abstract

This paper presents a model in which safe assets are systemic because they are the medium of exchange for risky assets. Like commodity money, these assets are costly to produce and have some intrinsic value, resulting in (a) non-neutrality and (b) overproduction. Quantitatively, the welfare consequences of these inefficiencies depend on the costs of producing safe assets, which can be inferred from the equilibrium value of the liquidity premium. When the model is calibrated to plausible liquidity premia the resulting inefficiencies are not large.

Keywords: Safe assets, Shadow banking, Liquidity premium, Commodity money, Liquidity crisis

JEL Classification: E41, E44, G12, G23

Suggested Citation

Kay, Benjamin and Eden, Maya, Safe Assets as Commodity Money (October 8, 2015). Available at SSRN: https://ssrn.com/abstract=2671919 or http://dx.doi.org/10.2139/ssrn.2671919

Benjamin Kay (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/benjamin-s-kay.htm

Maya Eden

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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