Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
The shortage of safe assets in the US investment portfolio: Some international evidence
() and Maria Teresa Punzi
Abstract: This paper develops a Bayesian Global VAR (GVAR) model to
track the international transmission dynamics of two stylized shocks,
namely a supply and demand shock to US-based safe assets. Our main findings
can be summarized as follows. First, we find that (positive) supply-sided
shocks lead to pronounced increases in economic activity which spills over
to foreign countries. The impact of supply-sided shocks can also be seen
for other quantities of interest, most notably equity prices and exchange
rates in Europe. Second, a demand-sided shock leads to an appreciation of
the US dollar and generally lower yields on US securities, forcing
investors to shift their portfolios towards foreign fixed income
securities. This yields sizable positive effects on US output, equity
prices and a general decrease in financial market volatility.
Keywords: Safe Assets, Zero Lower Bound, Treasury Bonds, Shortage, GlobalVAR; (follow links to similar papers)
JEL-Codes: C32,; E23,; E32; (follow links to similar papers)
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