NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The History and Economics of Safe Assets

Gary B. Gorton

NBER Working Paper No. 22210
Issued in April 2016
NBER Program(s):Asset Pricing, Corporate Finance, Development of the American Economy, Monetary Economics

Safe assets play a critical role in an(y) economy. A “safe asset” is an asset that is (almost always) valued at face value without expensive and prolonged analysis. That is, by design there is no benefit to producing (private) information about its value. And this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can easily be used to exchange for goods or services or to exchange for another asset. These short-term safe assets are money or money-like. A long-term safe asset can store value over time or be used as collateral. Human history can be written in terms of the search for and production of safe assets. But, the most prevalent, privately-produced short-term safe assets—bank debt, are subject to runs and this has important implications for macroeconomics and for monetary policy.

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Document Object Identifier (DOI): 10.3386/w22210

Published: Gary Gorton, 2017. "The History and Economics of Safe Assets," Annual Review of Economics, vol 9(1), pages 547-586.

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