A Model of the Safe Asset Mechanism ( SAM ) : Safety Traps and Economic Policy

  title={A Model of the Safe Asset Mechanism ( SAM ) : Safety Traps and Economic Policy},
  author={Ricardo J. Caballero and E. Farhi},
The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with conventional liquidity traps, but also exhibit important differences, in particular with respect to their reaction to policy packages. In general, policy-puts (such as QE1, LTRO, fiscal policy, etc.) that support… CONTINUE READING

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