Topic: Safe Assets: A Dynamic Retrading Perspective
Speaker: Markus Brunnermeier, Professor of Economics, Princeton University
Time: 10:00am-11:30am, November 9 (Beijing Time)
Location: 4-101
Abstract:
The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers’ interest burden. As idiosyncratic risk rises during recessions, so does the value of the service flows bestowing the safe asset with a negative β. The resulting exorbitant privilege resolves government debt valuation puzzles and allows the government to run a permanent (primary) deficit without ever paying back its debt, but the government faces a “Debt Laffer Curve”.
About the speaker:
Markus K. Brunnermeier is the Edwards S. Sanford Professor in the economics department at Princeton University and director of Princeton's Bendheim Center for Finance. His research focuses on international financial markets and the macroeconomy with special emphasis on bubbles, liquidity, financial and monetary price stability, and digital money. In 2020, at the outbreak of Covid, he established a webinar series.
Brunnermeier is also nonresident senior fellow at the Peterson Institute, a research associate at the National Bureau of Economic Research, the Centre for Economic Policy Research, CESifo, the Luohan Academy, ABFER, and a member of the Bellagio Group on the International Economy. He is a Sloan Research Fellow, fellow of the Econometric Society, Guggenheim Fellow, and the recipient of the Bernácer Prize granted for outstanding contributions in the fields of macroeconomics and finance. He is a member of several advisory groups, including to the US Congressional Budget Office, the Bank for International Settlements, and the Bundesbank as well as previously to the International Monetary Fund, the Federal Reserve of New York, the European Systemic Risk Board. Brunnermeier was awarded his PhD by the London School of Economics (LSE).
He has been awarded several best paper prizes and served on the editorial boards of a number of leading economics and finance journals. He has worked to establish the concepts of: liquidity spirals, Financial Dominance, CoVaR as a measure of systemic risk, the Volatility Paradox, Paradox of Prudence, Resilience, European Safe Bonds (ESBies), the redistributive monetary policy, the Reversal Rate, and Digital Currency Areas. His recent book “The Resilient Society” won the Prize for the 2021 best business book in German and was listed among best economics books by the Financial Times.
