Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
Session Chair: Marco Grotteria, London Business School Discussant: Paymon Khorrami, Duke University
Location:Room 501
Presentations
Fragility of Safe Asset Markets
Thomas M Eisenbach1, Gregory Phelan2
1New York Fed; 2Williams College
In March 2020, safe asset markets experienced surprising and unprecedented price crashes. We explain how strategic investor behavior can create such market fragility in a model with investors valuing safety, investors valuing liquidity, and constrained dealers. While safety investors and liquidity investors can interact symbiotically with offsetting trades in times of stress, liquidity investors’ strategic interaction harbors the potential for self-fulfilling fragility. When the market is fragile, standard flight-to-safety can have a destabilizing effect and trigger a dash-for-cash by liquidity investors. Well-designed policy interventions can reduce market fragility ex ante and restore orderly functioning ex post.