Are Collateral-Constraint Models Ready for Macroprudential Policy Design?

47 Pages Posted: 6 Sep 2021 Last revised: 18 Oct 2024

See all articles by Pablo Ottonello

Pablo Ottonello

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Diego Perez

New York University (NYU) - Department of Economics

Paolo Varraso

Independent

Date Written: September 2021

Abstract

We study the design of macroprudential policies based on quantitative collateral-constraint models. We show that the desirability of macroprudential policies critically depends on the specific form of collateral used in debt contracts: While inefficiencies arise when current prices affect collateral---a frequent benchmark used to guide policies---they do not when only future prices affect collateral. Since the microfoundations and quantitative predictions of models with future-price collateral constraints do not appear less plausible than those using current prices, we conclude that additional empirical work is essential for the use of these models in macroprudential policy design.

Suggested Citation

Ottonello, Pablo and Perez, Diego J. and Varraso, Paolo, Are Collateral-Constraint Models Ready for Macroprudential Policy Design? (September 2021). NBER Working Paper No. w29204, Available at SSRN: https://ssrn.com/abstract=3918099

Pablo Ottonello (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Diego J. Perez

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Paolo Varraso

Independent ( email )

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