2 Some governments are beginning to take difficult steps to address this problem, although their ability to change plan provisions is limited by the strong legal protection (including, in some states, constitutional protection) accorded to accrued pension benefits of public employees in many jurisdictions. 3 State and local governments also will have to address the burgeoning costs of retiree health benefits.
In this case, it may be optimal for the central bank to “lend a hand” to macroprudential policy, partly deviating from its primary objective of price stability in order to improve the overall stability of the economy. To what extent do countercyclical macroprudential policy and monetary policy have the potential to affect the economy independently of each other?