Sectoral Dynamics of Safe Assets in Advanced Economies


What is the sectoral composition of the market for safety, and does it matter for economic stability? To address these questions, we construct a novel dataset of sectoral safe asset positions in 24 advanced economies since 1980. We document that the ratio of safe to total financial assets has remained stable in most countries, despite considerable growth in gross and net safe-asset positions relative to GDP. We find that fluctuations in safe-asset positions are mainly driven by the financial and the foreign sectors, with the real economy playing a muted role, indicating that financials in advanced economies have been increasingly intermediating safety within and across borders. We conclude by showing that increases in safe asset demand by foreigners -- or its counterpart, the supply by financials, -- are associated with expansions in domestic risky credit and lower subsequent output growth.