The Side Effects of Safe Asset Creation

• 成果类型: Article
• 署名作者: Acharya, Sushant; Dogra, Keshav
• 署名单位: Bank of Canada; Federal Reserve System - USA; Federal Reserve Bank - New York
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1093/jeea/jvab029
• 发表日期: 2022
• 页码: 581-625
• 关键词: public debt; RISK; liquidity; MODEL; EFFICIENCY; TRENDS

摘要

We present an incomplete markets model to understand the costs and benefits of increasing government debt when an increased demand for safety pushes the natural rate of interest below zero. A higher demand for safe assets causes the zero lower bound (ZLB) to bind, increasing unemployment. Higher government debt satiates the demand for safe assets, raising the natural rate, and restoring full employment. However, this entails permanently lower investment, which reduces welfare, since our economy is dynamically efficient even when the natural rate is negative. Despite this, increasing debt until the ZLB no longer binds raises welfare when alternative instruments are unavailable. Higher inflation targets instead allow for negative real interest rates and achieve full employment without reducing investment.