Authors: Alexander Mechanick and Jacob P. Weber
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Staff Reports
The Countercyclical Benefits of Regulatory Costs
Number 1109
July 2024
July 2024
JEL classification: E02, E6, K2, K3
Legal academics, journalists, and senior executive branch officials alike have assumed that the cost of imposing new regulatory requirements is higher in severe recessions that drive the central bank’s policy rate to zero than in other times. This is not correct; the aggregate output costs of regulatory requirements decrease, not increase, in such recessions. This article is the first to analyze how this effect arises, drawing on both conventional macroeconomic models and empirical findings from the econometrics literature. Scholars and policymakers have likely missed the countercyclical benefits of regulatory costs because of informal, ad hoc macroeconomic assumptions embedded in regulatory analysis.
Author Disclosure Statement(s)
Matteo Crosignani
I, Matteo Crosignani, author of the NY FED Staff Report submission “Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls” declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.htm.
Alexander Mechanick
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Jacob Weber
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I, Matteo Crosignani, author of the NY FED Staff Report submission “Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls” declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.htm.
Alexander Mechanick
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Jacob Weber
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Mechanick, Alexander, and Jacob Weber. 2024. “The Countercyclical Benefits of Regulatory Costs.” Federal Reserve Bank of New York Staff Reports, no. 1109, April. https://doi.org/10.59576/sr.1109
Mechanick, Alexander, and Jacob Weber. 2024. “The Countercyclical Benefits of Regulatory Costs.” Federal Reserve Bank of New York Staff Reports, no. 1109, April. https://doi.org/10.59576/sr.1109
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