Scarcity of Safe Assets and Global Neutral Interest Rates

39 Pages Posted: 16 Jul 2020

See all articles by Thiago R.T. Ferreira

Thiago R.T. Ferreira

Board of Governors of the Federal Reserve System

Samer Shousha

Board of Governors of the Federal Reserve System

Date Written: July, 2020

Abstract

We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our sample.

Keywords: neutral interest rates, Scarcity of safe assets, International reserves, global savings glut

JEL Classification: E21, E43, E52

Suggested Citation

R.T. Ferreira, Thiago and Shousha, Samer, Scarcity of Safe Assets and Global Neutral Interest Rates (July, 2020). International Finance Discussion Paper No. 1293, Available at SSRN: https://ssrn.com/abstract=3649037 or http://dx.doi.org/10.17016/IFDP.2020.1293

Thiago R.T. Ferreira (Contact Author)

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Samer Shousha

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.samershousha.com

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