Optimal Policy for Macro-Financial Stability

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

No 26397, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There is a new and now extensive literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses often 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 optimally by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. We establish this in the context of a well-known model economy, but the result is relevant whenever the policy instrument that is assigned to the planner can affect the market price that determines the value of collateral in the borrowing constraint. The result implies that a robust normative analysis in this model class requires explicit computations of the Ramsey optimal policy problem.

JEL-codes: E61 F38 F41 G01 G18 H23 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
Note: EFG IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric R. Young, 2023. "Optimal Policy for Macrofinancial Stability," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 401-428, October.

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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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