The History and Economics of Safe Assets

55 Pages Posted: 2 May 2016 Last revised: 11 May 2016

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Multiple version iconThere are 3 versions of this paper

Date Written: April 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. 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 (April 2016). NBER Working Paper No. w22210. Available at SSRN: https://ssrn.com/abstract=2773440

Gary B. Gorton (Contact Author)

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National Bureau of Economic Research (NBER)

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Yale University - Yale Program on Financial Stability

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