The Private Production of Safe Assets

Authors: Marcin Kacperczyk (Imperial College London Business School), Christophe Pérignon (HEC Paris), Guillaume Vuillemey (HEC Paris and CEPR)

Title: The Private Production of Safe Assets

Abstract: Do claims on the private sector serve the role of safe assets? We answer this question using high-frequency panel data on prices and quantities of certificates of deposit (CDs) issued in Europe. We find that only very short-term private securities benefit from a premium for safety. Further, we show that the issuance of short-term CDs strongly responds to measures of safety demand. Our identification strategy uses a combination of (1) exclusion restrictions in a structural model of demand/supply equations, and (2) an instrumental variables approach. The private production of safe assets is stronger for issuers with high creditworthiness, and breaks down during episodes of market stress even though the market does not freeze. We conclude that even very short-term private assets are sensitive to changes in the information environment.