Optimal Policy for Macro-Financial Stability

Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci () and Eric Young

No 899, Staff Reports from Federal Reserve Bank of New York

Abstract: There is a new and now large literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate characterizations of welfare-maximizing policies relative to the Ramsey approach.

Keywords: Ramsey optimal policy; social planner; constrained efficiency; financial crises; pecuniary externalities; macroprudential policies and capital controls (search for similar items in EconPapers)
JEL-codes: E61 F38 F44 H23 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-10-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Optimal Policy for Macrofinancial Stability (2023)
Working Paper: Optimal Policy for Macro-Financial Stability (2019)
Working Paper: Optimal Policy for Macro-Financial Stability (2013)
Working Paper: Optimal Policy for Macro-Financial Stability (2012)
Working Paper: Optimal Policy for Macro-Financial Stability (2012)
Working Paper: Optimal policy for macro-financial stability (2012)
Working Paper: Optimal policy for macro-financial stability (2012)
Working Paper: Optimal Policy for Macro-Financial Stability (2012)
Working Paper: Optimal Policy for Macro-Financial Stability (2012)
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