Author(s): Emilio Zaratiegui
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I study optimal macroprudential policy when its effects on investment and productivity are taken into account. To do so, I introduce a tractable way of modeling misallocation that generates a link between investment and productivity and can be easily taken to the data. Because macroprudential policies affect investment, they lead to productivity losses. I show that, when the policymaker is constrained in their available instruments, this generates a policy trade-off between financial stability and productivity growth. I derive a sufficient statistics formula for the second-best policy, including its productivity costs. I leverage the tractability of my model to get a range of estimates for the latter using rich firm-level microdata for several European countries. The trade-off is quantitatively relevant: For baseline crisis probabilities, productivity losses switch optimal policy from a capital control to a foreign borrowing subsidy.
Published: 2024-12-28 14:03:34 PT
Stage: Working Paper
Fields: Macroeconomics
Research Group(s): Playground
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Versions: v1 (12/28/2024)