Staff Reports
Optimal Policy for Macro-Financial Stability
Number 899
October 2019

JEL classification: E61, F38, F44, H23

Authors: Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young

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.

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AUTHOR DISCLOSURE STATEMENT(S)

GIANLUCA BENIGNO

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

I have not received any financial support for this research.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

I have not received any sources of funds for this research.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

I hold no paid or unpaid position in any “relevant” organization.

(4) The disclosures required above apply to any close relative or partner of any author.

No close relative or partner meets any of the criteria in any of the above disclosures.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

No party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

I agree that this disclosure statement will be made available to the public.

 

HUIGANG CHEN

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

I have not received any financial support for this research.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

I have not received any sources of funds for this research.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

I hold no paid or unpaid position in any “relevant” organization.

(4) The disclosures required above apply to any close relative or partner of any author.

No close relative or partner meets any of the criteria in any of the above disclosures.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

No party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

I agree that this disclosure statement will be made available to the public.

 

CHRISTOPHER OTROK

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

I received no financial support for this project.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

Financial support exceeding $10,000 was provided by the Federal Reserve Bank of St. Louis. The Fed had no control over the research content.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

I hold no paid or unpaid position in any “relevant” organization.

(4) The disclosures required above apply to any close relative or partner of any author.

No close relative or partner meets any of the criteria in any of the above disclosures.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

No party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

I agree that this disclosure statement will be made available to the public.

 

ALESSANDRO REBUCCI

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

I have not received any financial support for this research.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

I have not received any sources of funds for this research.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

I hold no paid or unpaid position in any “relevant” organization.

(4) The disclosures required above apply to any close relative or partner of any author.

No close relative or partner meets any of the criteria in any of the above disclosures.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

No party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

I agree that this disclosure statement will be made available to the public.

 

 ERIC R. YOUNG

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

This work was funded in part by the Bankard Fund for Political Economy at the University of Virginia. The Bankard Fund had no editorial or material control over the research content.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

Financial support exceeding $10,000 was provided by the Federal Reserve Banks of Cleveland, Dallas, and Kansas City. None of these institutions had any control over the research content.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

I hold no paid or unpaid position in any “relevant” organization.

(4) The disclosures required above apply to any close relative or partner of any author.

No close relative or partner meets any of the criteria in any of the above disclosures.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

No party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

I agree that this disclosure statement will be made available to the public.