Afternoon Seminar: Genevieve Kenney on Medicare and Medicaid
Weekend Reading: David Gerrold: Science-Fictional Sad Puppies

Must-Read: Ricardo J. Caballero and Emmanuel Farhi: The Safety Trap: "In this paper we provide a model of the macroeconomic consequences of a shortage of safe assets...

In particular, we discuss the emergence of a deflationary safety trap equilibrium which is an acute form of a liquidity trap. In this context, issuing public debt, swapping private risky assets for public debt, or increasing the inflation target, stimulate aggregate demand and output, while forward guidance is ineffective. The safety trap can be arbitrarily persistent, as in the secular stagnation hypothesis, despite the existence of infinitely lived assets. When we endogenize the private securitization capacity, we show that in a safety trap there is a securitization externality that leads to underprovision of safe assets.