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Optimal Macroprudential Policy: Frictions, Redistribution, and Politics


  • andrea prestipino

    (Federal Reserve Board)

  • Ricardo Nunes

    (Federal Reserve Board)

  • Matteo Iacoviello

    (Federal Reserve Board)


We study optimal macroprudential policies in an heterogeneous agent economy with collateral constraints. An enforcement problem results in a collateral constraint that depends on the market value of the borrower's assets. First, we analyze the optimal allocation chosen by a Pareto Planner that cannot solve the enforcement problem faced by the markets and can only affect borrower's policies while taking the supply of credit as given. Second, we study the problem of a Ramsey Planner that can choose taxes that affect both the demand and supply of credit. While the standard macroprudential motive would make it optimal for the Planner to reduce total borrowing, the competitive equilibrium of our model can also feature under-borrowing when the borrower's initial wealth is low enough. Since the model explicitly considers both borrowers and savers, the choice of the loan-to-value ratio and the taxes on assets and borrowing induce distributional effects. We find that the presence of over-borrowing critically depends on only taking into account the welfare of borrowers while disregarding that of savers.

Suggested Citation

  • andrea prestipino & Ricardo Nunes & Matteo Iacoviello, 2016. "Optimal Macroprudential Policy: Frictions, Redistribution, and Politics," 2016 Meeting Papers 1602, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1602

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    References listed on IDEAS

    1. Kirilenko, Andrei A., 2000. "On the endogeneity of trading arrangements," Journal of Financial Markets, Elsevier, vol. 3(3), pages 287-314, August.
    2. repec:oup:rasset:v:1:y:2011:i:1:p:74-95. is not listed on IDEAS
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