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Wednesday, April 06, 2016

The Safe Asset Problem is Back: Negative Interest Rate Edition

David Beckworth:

The Safe Asset Problem is Back: Negative Interest Rate Edition: The safe asset shortage problem is back. Actually, it never went away..., yields on government bonds considered safe assets have been steadily declining since the crisis broke out. 
This problem is now manifesting itself in a new form: central banks tinkering with negative interest rates. Many view this development as the latest manifestation of central banks running amok. A more nuance read is that central banks are continuing to imperfectly respond to safe asset shortage problem. ...
But many observers miss this point. They confuse the symptom--central bankers tinkering with negative interest rates--for the cause--the safe asset shortage. So I want to revisit the safe asset shortage problem in this post by reviewing what exactly it is, why it has persisted for so long, and what can be done to remedy it. ...

    Posted by on Wednesday, April 6, 2016 at 10:33 AM in Economics, Monetary Policy | Permalink  Comments (30)


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