American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Optimal Policy for Macrofinancial Stability
American Economic Journal: Macroeconomics
vol. 15,
no. 4, October 2023
(pp. 401–28)
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 there exists at least one set of tools implementing the constrained efficient allocation that can also be used by a Ramsey planner to replicate an unconstrained allocation, achieving higher welfare. Constrained efficiency may lead to inaccurate characterizations of welfare maximizing policies relative to Ramsey optimal policy.Citation
Benigno, Gianluca, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young. 2023. "Optimal Policy for Macrofinancial Stability." American Economic Journal: Macroeconomics, 15 (4): 401–28. DOI: 10.1257/mac.20200046Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E61 Policy Objectives; Policy Designs and Consistency; Policy Coordination
- G01 Financial Crises
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
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