A model of safe asset determination

Zhiguo He, Arvind Krishnamurthy, Konstantin Milbradt

Research output: Contribution to journalArticlepeer-review

33 Scopus citations


What makes an asset a "safe" asset? We study a model where two countries each issue sovereign bonds to satisfy investors' safe asset demands. The countries differ in the float of their bonds and the fundamental resources available to rollover debts. A sovereign's debt is safer if its fundamentals are strong relative to other possible safe assets, not merely strong on an absolute basis. If demand for safe assets is high, a large float enhances safety through a market depth benefit. If demand for safe assets is low, then large debt size is a negative as rollover risk looms large.

Original languageEnglish (US)
Pages (from-to)1230-1262
Number of pages33
JournalAmerican Economic Review
Issue number4
StatePublished - Apr 2019

ASJC Scopus subject areas

  • Economics and Econometrics


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