Are collateral-constraint models ready for macroprudential policy design?

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 research on whether and how contract design is variant to policy is important for the use of these models in macroprudential policy design.