Working Paper: CEPR ID: DP18273
Authors: Fernando Arce; Julien Bengui; Javier Bianchi
Abstract: In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production structure and the policy instruments available to the planner. We argue that macroprudential policy is desirable regardless of whether the competitive equilibrium features more or less borrowing than the constrained-efficient equilibrium. In our quantitative analysis, macroprudential taxes on borrowing turn out to be larger when the government has access to ex-post stabilization policies.
Keywords: macroprudential policy; overborrowing; underborrowing
JEL Codes: E58; F31; F32; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroprudential policy (E60) | borrowing levels (H74) |
| macroprudential taxes on borrowing (F38) | internalize social costs of debt (H69) |
| availability of government stabilization policies (E63) | macroprudential taxes on borrowing (F38) |
| pecuniary externalities (D62) | inefficient private borrowing (G51) |
| macroprudential policy (E60) | mitigate risks of excessive debt accumulation (G51) |