Authors: Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young
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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.
GIANLUCA BENIGNO
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HUIGANG CHEN
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CHRISTOPHER OTROK
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Financial support exceeding $10,000 was provided by the Federal Reserve Bank of St. Louis. The Fed had no control over the research content.
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ALESSANDRO REBUCCI
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ERIC R. YOUNG
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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.
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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.
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No close relative or partner meets any of the criteria in any of the above disclosures.
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