Arbeitspapier
Debt as Safe Asset
The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers' interest burden and allows the government to run a permanent (primary) deficit without ever paying back its debt. As idiosyncratic risk rises during recessions, so does the value of the service flows bestowing the safe asset with a negative ß. This resolves government debt valuation puzzles. Nevertheless, the government faces a "Debt Laffer Curve". The paper also has important implications for fiscal debt sustainability.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 9500
- Classification
-
Wirtschaft
- Subject
-
safe asset
government debt
Debt Laffer Curve
Ponzi Scheme
fiscal capacity
I Theory of Money
r vs. g
- Event
-
Geistige Schöpfung
- (who)
-
Brunnermeier, Markus K.
Merkel, Sebastian
Sannikov, Yuliy
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2021
- Handle
- Last update
- 10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Brunnermeier, Markus K.
- Merkel, Sebastian
- Sannikov, Yuliy
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2021
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