Public Safe Assets Determination

Abstract

ABSTRACT On a sample of 150 economies, we characterise the safety of public debt by both ordinary least square and instrument variable regressions. For demand analysis, the public debt is safer for a larger financial market size, a higher financial development level, a lower inflation rate and greater political stability. For supply analysis, the safety of debt improves for a huger debt stock in economies with high income per capita but deteriorates in economies with low income per capita. Cases studies record that, compared with the prediction by economic fundamentals, the investors overestimate the debt safety of China but underestimate that of Greece and Japan.