Gary Gorton: The History and Economics of Safe Assets (2016)
Andolfatto: So to begin, we should be clear about what economists generally mean by safe assets, right? I mean a safe asset is not necessarily a risk-free asset. So it’s a bit unfortunate that the labeling suggests that it is. But instead it’s an asset that can be basically readily accepted as an exchange medium or basically used as a form of money.
So the cash in our pockets is a perfect example of a safe asset. The cash in our pocket is not risk free. I mean, the price of your favorite good or service might suddenly jump tomorrow and that would whittle away at the purchasing power of the cash in your pocket today. So that’s the sense in which a safe asset is not necessarily risk free. But we like to hold these monetary instruments…
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