Macroprudential and monetary policies: implications for financial stability and welfare

In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule for the loan-to-value ratio (LTV), which responds to credit growth, interacts with a traditional Taylor rule for monetary policy. We compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non-coordinated way. We find that both policies acting together unambiguously improves the stability of the system. In both cases, this interaction is welfare improving for the society, especially in the case of the non-coordinated game. There is though a trade-off between borrowers and savers. However, borrowers can compensate the saver’s welfare loss View the MathML sourcela Kaldor–Hicks to achieve a Pareto-superior outcome

Science and Ideology in Economic, Political, and Social Thought

This paper has two sources: One is my own research in three broad areas: business cycles, economic measurement and social choice. In all of these fields I attempted to apply the basic precepts of the scientific method as it is understood in the natural sciences. I found that my effort at using natural science methods in economics was met with little understanding and often considerable hostility. I found economics to be driven less by common sense and empirical evidence, then by various ideologies that exhibited either a political or a methodological bias, or both. This brings me to the second source: Several books have appeared recently that describe in historical terms the ideological forces that have shaped either the direct areas in which I worked, or a broader background. These books taught me that the ideological forces in the social sciences are even stronger than I imagined on the basis of my own experiences. The scientific method is the antipode to ideology. I feel that the scientific work that I have done on specific, long standing and fundamental problems in economics and political science have given me additional insights into the destructive role of ideology beyond the history of thought orientation of the works I will be discussing

Allocation mechanisms, incentives, and endemic institutional externalities

Whether an economic agent’s decision creates an externality often depends on the institutional context in which the decision was made. Indeed, in orthodox economics, a technological or exogenous externality occurs just in case one agent’s economic welfare or production possibilities are directly affected by the market decisions of other agents. A pecuniary externality occurs just in case one consumer’s economic welfare or producer’s profit is affected indirectly by price changes caused by changes in other agents’ decisions. Similarly, an institutional or endogenous externality may arise whenever allocations are determined by a mechanism that is not strategy proof for some agent. Then even a resource balance constraint creates an institutional externality except in special cases such as when no individual agent’s action can affect market clearing prices — i.e., there are no pecuniary externalities

Human well‐being and climate change mitigation

Climate change mitigation research is fundamentally motivated by the preservation of human lives and the environmental conditions which enable them. However, the field has to date rather superficial in its appreciation of theoretical claims in well‐being thought, with deep implications for the framing of mitigation priorities, policies, and research. Major strands of well‐being thought are hedonic well‐being—typically referred to as happiness or subjective well‐being—and eudaimonic well‐being, which includes theories of human needs, capabilities, and multidimensional poverty. Aspects of each can be found in political and procedural accounts such as the Sustainable Development Goals. Situating these concepts within the challenges of addressing climate change, the choice of approach is highly consequential for: (1) understanding inter‐ and intra‐generational equity; (2) defining appropriate mitigation strategies; and (3) conceptualizing the socio‐technical provisioning systems that convert biophysical resources into well‐being outcomes. Eudaimonic approaches emphasize the importance of consumption thresholds, beyond which dimensions of well‐being become satiated. Related strands of well‐being and mitigation research suggest constraining consumption to within minimum and maximum consumption levels, inviting normative discussions on the social benefits, climate impacts, and political challenges associated with a given form of provisioning. The question of how current socio‐technical provisioning systems can be shifted towards low‐carbon, well‐being enhancing forms constitutes a new frontier in mitigation research, involving not just technological change and economic incentives, but wide‐ranging social, institutional, and cultural shifts