The safety of government debt

Arbeitspapier

We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. We identify the frontier between safe and unsafe assets and show how the growth rate of the economy and its fiscal capacity interact with the degree of ambiguity amongst investors to determine the safe-asset equilibrium. We use our framework to illustrate a fiscal variation on the Triffin dilemma, in which the role of a country as sole provider of international liquidity is questioned as its size in the world economy - and hence its fiscal capacity - diminishes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Working Paper ; No. 2013-34

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Criteria for Decision-Making under Risk and Uncertainty ; International Economic Order and Integration ; Open Economy Macroeconomics ; International Financial Markets
• Subject: Economic models ; Financial stability ; International financial markets

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Anand, Kartik ; Gai, Prasanna
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2013

Further information

• DOI: doi:10.34989/swp-2013-34
• Handle: http://hdl.handle.net/10419/95681
• Last update: 10.03.2025, 11:43 AM CET