The Private Production of Safe Assets
59 Pages Posted: 13 Jun 2017
Date Written: June 2017
Do claims on the private sector serve the role of safe assets? We answer this question using high-frequency panel data on prices and quantities of certificates of deposit (CD) and commercial paper (CP) issued in Europe. We show that only very short-term private securities benefit from a premium for safety. We then use several sources of variation to show that the issuance of short-term CDs strongly responds to measures of safety demand. The private production of safe assets is stronger for issuers with high credit worthiness, and breaks down during episodes of market stress. We conclude that even very short-term private assets are sensitive to changes in the information environment and should not be treated as equally safe at all times.
Keywords: Collateral, safe assets, Short-term debt, Treasuries
JEL Classification: E44, G21
Suggested Citation: Suggested Citation