NY Fed paper studies when government should issue safe assets
Model implies only under certain situations should the government issue new debt
A shortage of safe assets is one leading explanation for the current very low natural rate of interest in many economies, but policymakers should not necessarily issue new debt to deal with the shortage, research published by the Federal Reserve Bank of New York has found.
The staff report, The Side Effects of Safe Asset Creation by Sushant Acharya and Keshav Dogra, outlines a model to study when a government should issue more safe assets. Issuing the assets could help central banks to deal
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