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Safe Assets Scarcity, Liquidity and Spreads

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  • G. Chiesa

Abstract

This paper constructs a simple general equilibrium model to analyse the interactions between the financial and the real sector in an environment where liquidity holdings is an input of the credit/investment process. The supply of liquidity is constrained in that income pledgeability limits inside liquidity, and not all sovereign debt is safe/liquid. We pin down the determinants of liquidity/collateral premia and bond spreads, and with reference to the eurozone: (i) the implications of the ECB s policies on liquidity provision and credit, and (ii) the debt management policy that would increase welfare with no need for transfer payments.

Suggested Citation

  • G. Chiesa, 2014. "Safe Assets Scarcity, Liquidity and Spreads," Working Papers wp927, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp927
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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