The History and Economics of Safe Assets

58 Pages Posted: 27 Apr 2016 Last revised: 2 Sep 2016

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2016

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. Much of 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.

Suggested Citation

Gorton, Gary B., The History and Economics of Safe Assets (August 31, 2016). Available at SSRN: https://ssrn.com/abstract=2770569 or http://dx.doi.org/10.2139/ssrn.2770569

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

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HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

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