The Countercyclical Benefits of Regulatory Costs

Alexander Mechanick and Jacob Weber ()

No 1109, Staff Reports from Federal Reserve Bank of New York

Abstract: Legal academics, journalists, and senior executive branch officials alike have assumed that the cost of imposing new regulatory requirements is higher in severe recessions that drive the central bank’s policy rate to zero than in other times. This is not correct; the aggregate output costs of regulatory requirements decrease, not increase, in such recessions. This article is the first to analyze how this effect arises, drawing on both conventional macroeconomic models and empirical findings from the econometrics literature. Scholars and policymakers have likely missed the countercyclical benefits of regulatory costs because of informal, ad hoc macroeconomic assumptions embedded in regulatory analysis.

Keywords: law and economics; law and macroeconomics; zero lower bound; zero lower bound (ZLB) (search for similar items in EconPapers)
JEL-codes: E02 E6 K2 K3 (search for similar items in EconPapers)
Date: 2024-07-01
New Economics Papers: this item is included in nep-cba and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:98568

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DOI: 10.59576/sr.1109

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