Safe Asset Scarcity and Aggregate Demand
We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming style environment. Acute safe asset scarcity forces the economy into a "safety trap" recession. In the open economy, safe asset scarcity spreads from one country to the other via capi...
| Main Authors: | , , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
American Economic Association
2017
|
| Online Access: | http://hdl.handle.net/1721.1/110283 https://orcid.org/0000-0003-2760-451X |
| _version_ | 1826195200040501248 |
|---|---|
| author | Farhi, Emmanuel Gourinchas, Pierre-Olivier Caballero, Ricardo J |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Farhi, Emmanuel Gourinchas, Pierre-Olivier Caballero, Ricardo J |
| author_sort | Farhi, Emmanuel |
| collection | MIT |
| description | We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming style environment. Acute safe asset scarcity forces the economy into a "safety trap" recession. In the open economy, safe asset scarcity spreads from one country to the other via capital flows, equalizing interest rates. Acute global safe asset scarcity forces the economy into a global safety trap. The exchange rate becomes indeterminate but plays a crucial role in both the distribution and the magnitude of output adjustment across countries. Policies that increase the net supply of safe assets somewhere are output enhancing everywhere. |
| first_indexed | 2024-09-23T10:08:59Z |
| format | Article |
| id | mit-1721.1/110283 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:08:59Z |
| publishDate | 2017 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/1102832022-09-30T19:13:50Z Safe Asset Scarcity and Aggregate Demand Farhi, Emmanuel Gourinchas, Pierre-Olivier Caballero, Ricardo J Massachusetts Institute of Technology. Department of Economics Caballero, Ricardo J We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming style environment. Acute safe asset scarcity forces the economy into a "safety trap" recession. In the open economy, safe asset scarcity spreads from one country to the other via capital flows, equalizing interest rates. Acute global safe asset scarcity forces the economy into a global safety trap. The exchange rate becomes indeterminate but plays a crucial role in both the distribution and the magnitude of output adjustment across countries. Policies that increase the net supply of safe assets somewhere are output enhancing everywhere. 2017-06-26T21:24:31Z 2017-06-26T21:24:31Z 2016-05 Article http://purl.org/eprint/type/JournalArticle 0002-8282 http://hdl.handle.net/1721.1/110283 Caballero, Ricardo J., Emmanuel Farhi, and Pierre-Olivier Gourinchas. “Safe Asset Scarcity and Aggregate Demand†.” American Economic Review 106, no. 5 (May 2016): 513–518. © 2016 American Economic Association https://orcid.org/0000-0003-2760-451X en_US http://dx.doi.org/10.1257/aer.p20161108 American Economic Review Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Farhi, Emmanuel Gourinchas, Pierre-Olivier Caballero, Ricardo J Safe Asset Scarcity and Aggregate Demand |
| title | Safe Asset Scarcity and Aggregate Demand |
| title_full | Safe Asset Scarcity and Aggregate Demand |
| title_fullStr | Safe Asset Scarcity and Aggregate Demand |
| title_full_unstemmed | Safe Asset Scarcity and Aggregate Demand |
| title_short | Safe Asset Scarcity and Aggregate Demand |
| title_sort | safe asset scarcity and aggregate demand |
| url | http://hdl.handle.net/1721.1/110283 https://orcid.org/0000-0003-2760-451X |
| work_keys_str_mv | AT farhiemmanuel safeassetscarcityandaggregatedemand AT gourinchaspierreolivier safeassetscarcityandaggregatedemand AT caballeroricardoj safeassetscarcityandaggregatedemand |