The Supply of 'Safe' Assets and Fiscal Policy
18 Pages Posted: 22 Jul 2016 Last revised: 11 Jan 2018
Date Written: July 15, 2016
This study looks at the interrelationship between fiscal policy and safe assets as there is surprisingly little analysis about this beyond fleeting references. The study argues that from a certain point more public debt will not “buy” more safety: countries face a kind of “safe-assets Laffer curve” with a maximum amount of safe assets at some level of indebtedness. The position and “stability” of this curve depend on a number of national and international factors, including the international risk appetite and, as a more recent factor, QE policies by central banks. The study also finds evidence of declining safe assets as reflected in government debt ratings.
Keywords: Fiscal policy, public debt, safe assets, financial markets
JEL Classification: E62, G10
Suggested Citation: Suggested Citation