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

Schuknecht, Ludger, The Supply of 'Safe' Assets and Fiscal Policy (July 15, 2016). CFS Working Paper, No. 532, Available at SSRN: or

Ludger Schuknecht (Contact Author)

Bundesministerium der Finanzen ( email )

Wilhelmstrße 97
Berlin, D-10117

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