No. 1527 - Safety switches: the macroeconomic consequences of time-varying asset safety
This work introduces an indicator, the FLY (flight-to-safety index), to measure global demand for safe assets through a textual analysis of financial news. It then proposes an empirical methodology to measure variations in the riskiness of sovereign bonds over time ('safety switches'), and assess the implications of these variations for economic growth and public debt in a panel of advanced and emerging economies.
The FLY index correctly identifies flight-to-safety episodes, i.e. situations in which investors rebalance their portfolios towards safe assets. After the 2007-08 Global Financial Crisis, the stock of safe assets has decreased. Switches of sovereign bonds towards lower riskiness are associated with economic expansions and lower public debt; switches towards higher riskiness are instead associated with contractions and higher debt.
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21 April 2026
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