Optimal Credit Market Policy

Matteo Iacoviello, Ricardo Nunes and Andrea Prestipino
Additional contact information
Matteo Iacoviello: Federal Reserve Board of Governors and CEPR
Andrea Prestipino: Federal Reserve Board of Governors

No 225, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We study optimal credit market policy in a stochastic, quantitative, general equilibrium, infinite-horizon economy with collateral constraints tied to housing prices. Collateral constraints yield a competitive equilibrium that is Pareto inefficient. Taxing housing in good states and subsidizing it in recessions leads to a Pareto-improving allocation for borrowers and savers. Quantitatively, the welfare gains afforded by the optimal tax are significant. The optimal tax reduces the covariance of collateral prices with consumption, and, by doing so, it increases asset prices on average, thus providing welfare gains both in steady state and around it. We also show that the welfare gains stem from mopping up after the crash rather than a pure ex-ante macroprudential aspect, aligning with prior research that emphasizes the importance of ex-post measures compared to preventative policies alone.

JEL-codes: E32 E44 G18 H23 R21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.som.surrey.ac.uk/2025/DP02-25.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0225

Access Statistics for this paper

More papers in School of Economics Discussion Papers from School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Ioannis Lazopoulos ().