Magyar nyelven nem elérhető
Madalen Castells-Jauregui
Research
- Division
Financial Research
- Current Position
-
Senior Economist
- 30 September 2025
- WORKING PAPER SERIES - No. 3126Details
- Abstract
- Using novel data on sectoral safe asset positions in 21 advanced economies since 1980, we document the central role of the foreign sector in the market for safety and its macroeconomic implications. We show that safe asset holdings have expanded significantly relative to GDP, driven by rising net holdings of the foreign sector and accommodated by increased issuance from the financial and public sectors. Furthermore, fluctuations in safe assets are almost exclusively driven by the foreign and financial sectors, with close links between the two. Finally, increases in foreign demand for safety-or its counterpart, the supply by financials-are associated with domestic credit expansions and weaker medium-term output growth, both in raw data and when using FX reserve accumulation in Asian economies as instrument.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F34 : International Economics→International Finance→International Lending and Debt Problems
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 27 May 2025
- RESEARCH BULLETIN - No. 131Details
- Abstract
- This article studies the supply of private safe assets by banks and its implications for financial stability. Banks originate loans and improve loan quality through hidden screening efforts. They can then create safe assets by issuing debt backed by the safe payoffs, from both loans they have originated and a diversified pool of loans from other banks. The interaction between banks’ screening efforts and diversification decisions determines the volume of safe assets they supply. In the context of incomplete markets, a free-rider problem arises: individual banks fail to internalise how their efforts influence the ability to generate safe assets through diversification, as this depends on the collective efforts of all banks. This market failure creates a novel inefficiency, which worsens as the scarcity of safe assets increases, leading to a backward-bending safe asset supply curve. The public provision of safe assets helps mitigate the inefficiency by reducing their scarcity, but it cannot fully solve the problem. Moreover, the impact on the total private supply of safe assets is ambiguous: public safe assets reduce incentives for diversification (a “crowding-out” effect), which in turn increases banks’ incentives to exert screening effort (a “crowding-in” effect).
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 26 March 2025
- WORKING PAPER SERIES - No. 3044Details
- Abstract
- This paper analyzes the private production of safe assets and its implications forfinancial stability. Financial intermediaries (FIs) originate loans, exert hidden effort toimprove loan quality, and create safe assets by issuing debt backed by the safe paymentsfrom (i) their own loans and (ii) a diversified pool of loans from all intermediaries. Ishow that the interaction between effort and diversification decisions determines theaggregate level of safe assets produced by FIs. In the context of incomplete markets, Iidentify a free-rider problem: individual FIs fail to internalize how their effort influencesthe ability to generate safe assets through diversification, since the latter depends onthe collective effort of all FIs. This market failure generates a novel inefficiency, thatworsens as the scarcity of safe assets increases. The public provision of safe assetshelps mitigate this inefficiency by reducing their scarcity, but it cannot fully resolve it.Moreover, the impact on the total private supply of safe assets is ambiguous: public safeassets reduce incentives for diversification (crowding-out effect), which in turn increasesFIs’ incentives to exert effort (the crowding-in effect).
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation