Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210751
Authors: 
Benigno, Gianluca
Chen, Huigang
Otrok, Christopher M.
Rebucci, Alessandro
Young, Eric R.
Year of Publication: 
2019
Series/Report no.: 
Staff Report No. 899
Publisher: 
Federal Reserve Bank of New York, New York, NY
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 the same set of policy tools that implement the constrained efficient allocation can be used by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate characterizations of welfare-maximizing policies relative to the Ramsey approach.
Subjects: 
constrained efficiency
financial crises
macroprudential policies and capital controls
pecuniary externalities
Ramsey optimal policy
social planner
JEL: 
E61
F38
F44
H23
Document Type: 
Working Paper

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