The shortage of safe assets in the US investment portfolio: Some international evidence

Florian Huber, Maria Teresa Punzi

Publication: Scientific journalJournal articlepeer-review

Abstract

This paper develops a Bayesian Global VAR (GVAR) model to track the international transmission dynamics of two stylized shocks, namely a supply and demand shock to US-based safe assets. Our main findings can be summarized as follows. First, we find that (positive) supply-sided shocks lead to pronounced increases in economic activity which spills over to foreign countries. The impact of supply-sided shocks can also be seen for other quantities of interest, most notably equity prices and exchange rates in Europe. Second, a demand-sided shock leads to an appreciation of the US dollar and generally lower yields on US securities, forcing investors to shift their portfolios towards foreign fixed income securities. This yields sizable positive effects on US output, equity prices and a general decrease in financial market volatility.
Original languageEnglish
Pages (from-to)318 - 336
JournalJournal of International Money and Finance
Volume74
DOIs
Publication statusPublished - 2017

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 101026 Time series analysis
  • 502025 Econometrics
  • 502018 Macroeconomics

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