Scarcity of Safe Assets and Global Neutral Interest Rates

We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutr...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc Vol. 2020.0; no. 1293
Main Authors Shousha, Samer, Ferreira, Thiago
Format Journal Article Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.07.2020
Subjects
Interest rates
Online AccessGet full text

Cover

More Information
Summary:We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our sample.
ISSN:1073-2500
DOI:10.17016/ifdp.2020.1293