A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy / Ricardo J. Caballero, Emmanuel Farhi.

Format:

Book

Author/Creator:

Caballero, Ricardo J.

Contributor:

National Bureau of Economic Research.

Farhi, Emmanuel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18737.

NBER working paper series no. w18737

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Model of the Safe Asset Mechanism

A Model of the Safe Asset Mechanism

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with conventional liquidity traps, but also exhibit important differences, in particular with respect to their reaction to policy packages. In general, policy-puts (such as QE1, LTRO, fiscal policy, etc.) that support future bad states of the economy play a central role in the SAM environment, while policy-calls that support the good states of the recovery (e.g., some aspects of forward guidance) are less powerful. Public debt plays a central role in SAM as long as the government has spare fiscal capacity to back safe asset production.

Notes:

Print version record

January 2013.