Are Collateral-Constraint Models Ready for Macroprudential Policy Design?

Pablo Ottonello, Diego J. Perez and Paolo Varraso

No 29204, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the design of macroprudential policies based on quantitative collateral-constraint models. We show that the desirability of macroprudential policies critically depends on the specific form of collateral used in debt contracts: While inefficiencies arise when current prices affect collateral---a frequent benchmark used to guide policies---they do not when only future prices affect collateral. Since the microfoundations and quantitative predictions of models with future-price collateral constraints do not appear less plausible than those using current prices, we conclude that additional empirical work is essential for the use of these models in macroprudential policy design.

JEL-codes: E32 E44 F32 F36 F38 G01 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-isf, nep-mac and nep-mon
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Published as Pablo Ottonello & Diego J. Perez & Paolo Varraso, 2022. "Are collateral-constraint models ready for macroprudential policy design?," Journal of International Economics, .

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Journal Article: Are collateral-constraint models ready for macroprudential policy design? (2022)
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