How Safe is a Safe Asset?

CEPS Policy Insight, No 2018-08/February 2018

8 Pages Posted: 14 Jun 2018

See all articles by Paul De Grauwe

Paul De Grauwe

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Yuemei Ji

University College London - School of Slavonic and East European Studies

Date Written: February 22, 2018

Abstract

This contribution focuses on a recent proposal put forward by the European Systemic Risk Board to create a “safe asset” for the eurozone based on a repackaging of the risks of sovereign bonds, in the hope of stabilising an otherwise unstable system of sovereign bond markets. In the present paper, however, authors Paul De Grauwe and Yuemei Ji argue that a financial system that is fundamentally unstable cannot be stabilised by financial engineering. To this end, they first describe the nature of the instability of the government bond markets in a monetary union and then analyse whether this proposal of creating a safe asset will succeed in stabilising government bond markets in the eurozone.

Keywords: European Systemic Risk Board, eurozone, government bond markets, sovereign bond markets

Suggested Citation

De Grauwe, Paul and De Grauwe, Paul and Ji, Yuemei, How Safe is a Safe Asset? (February 22, 2018). CEPS Policy Insight, No 2018-08/February 2018, Available at SSRN: https://ssrn.com/abstract=3187208

Paul De Grauwe (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yuemei Ji

University College London - School of Slavonic and East European Studies ( email )

Malet Street
London WC1E 7HU
United Kingdom

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