Discussion Paper Details

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Title: The Private Production of Safe Assets

Author(s): Marcin Kacperczyk, Christophe Perignon and Guillaume Vuillemey

Publication Date: October 2017

Keyword(s): information sensitivity, safe assets and safety premium

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: How fragile is the production of safe assets by the private sector? We answer this question using high-frequency data on certificates of deposit (CDs) issued in Europe. We show that only short-term CDs benefit from a safety premium. Using two identification strategies, we further show that the issuance of short-term CDs strongly responds to measures of safety demand. During periods of stress, this relation vanishes. However, high-quality issuers are still able to issue safe assets in periods of stress as investors distinguish between high- and low-quality issuers. Therefore, concerns about externalities arising from private safety production may be partially overstated.

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Bibliographic Reference

Kacperczyk, M, Perignon, C and Vuillemey, G. 2017. 'The Private Production of Safe Assets'. London, Centre for Economic Policy Research.