2019/03/28 by Zhiguo He, Arvind Krishnamurthy, Konstantin Milbradt · 194 citations
Economics, Econometrics and Finance · #Asset (computer security) #Banking stability, regulation, efficiency #Bond #Business #Computer science #Debt #Economic theories and models #Economics #Finance #Financial economics #Float (project management) #Global Financial Crisis and Policies #Monetary economics #Rollover (web design) #SAFER
paper · open access · doi:10.1257/aer.20160216
published in American Economic Review 109(4), 1230-1262 (American Economic Association)
openalex publication_date 2019/03/28 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
What makes an asset a “safe” asset? We study a model where two countries each issue sovereign bonds to satisfy investors’ safe asset demands. The countries differ in the float of their bonds and the fundamental resources available to rollover debts. A sovereign’s debt is safer if its fundamentals are strong relative to other possible safe assets, not merely strong on an absolute basis. If demand for safe assets is high, a large float enhances safety through a market depth benefit. If demand for safe assets is low, then large debt size is a negative as rollover risk looms large. (JEL F34, H63)