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The Countercyclical Benefits of Regulatory Costs

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Legal academics, journalists, and senior executive branch officials alike have assumed that the cost of imposing new regulatory requirements is higher in severe recessions that drive the central bank’s policy rate to zero than in other times. This is not correct; the aggregate output costs of regulatory requirements decrease, not increase, in such recessions. This article is the first to analyze how this effect arises, drawing on both conventional macroeconomic models and empirical findings from the econometrics literature. Scholars and policymakers have likely missed the countercyclical benefits of regulatory costs because of informal, ad hoc macroeconomic assumptions embedded in regulatory analysis.

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  • Alexander Mechanick & Jacob P. Weber, 2024. "The Countercyclical Benefits of Regulatory Costs," Staff Reports 1109, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:98568
    DOI: 10.59576/sr.1109
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    More about this item

    Keywords

    law and economics; law and macroeconomics; zero lower bound; zero lower bound (ZLB);
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • K2 - Law and Economics - - Regulation and Business Law
    • K3 - Law and Economics - - Other Substantive Areas of Law

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