TY  - JOUR
AU  - Gorton,Gary B.
AU  - Ordoñez,Guillermo
TI  - The Supply and Demand for Safe Assets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18732
PY  - 2013
Y2  - January 2013
UR  - http://www.nber.org/papers/w18732
L1  - http://www.nber.org/papers/w18732.pdf
N1  - Author contact info:
Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu

Guillermo Ordonez
University of Pennsylvania
Department of Economics
428 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: (215) 898-8484
Fax: (215) 573-2057
E-Mail: ordonez@econ.upenn.edu
AB  - There is a demand for safe assets, either government bonds or private substitutes, for use as collateral. Government bonds are safe assets, given the government's power to tax, but their supply is driven by fiscal considerations, and does not necessarily meet the private demand for safe assets. Unlike the government, the private sector cannot produce riskless collateral. When the private sector reaches its limit (the quality of private collateral), government bonds are net wealth, up to the government’s own limits (taxation capacity). The economy is fragile to the extent that privately-produced safe assets are relied upon. In a crisis, government bonds can replace private assets that do not sustain borrowing anymore, raising welfare.
ER  -