The Safe Asset Shortage and the Low Inflation of 2010-2019: A Money Demand View

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See all articles by David Beckworth

David Beckworth

Mercatus Center at George Mason University

Date Written: December 23, 2021

Abstract

A low-inflation mystery emerged during the 2010-2019 period as the Federal Reserve struggled to hit its two percent inflation target. This paper presents theoretical results and empirical evidence that points to the safe asset shortage as a key reason for the low inflation during this time. Specifically, the paper shows that the safe asset shortage was part of a broader excess money demand phenomenon that raised the real demand for safe assets, lowered their yields and velocity, and created disinflationary pressures across many advanced economies.

Keywords: Federal Reserve, low-inflation mystery, safe asset shortage, excess money demand

JEL Classification: E31, E41, E43, E52, E62

Suggested Citation

Beckworth, David, The Safe Asset Shortage and the Low Inflation of 2010-2019: A Money Demand View (December 23, 2021). Available at SSRN: https://ssrn.com/abstract=

David Beckworth (Contact Author)

Mercatus Center at George Mason University ( email )

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