The Financial (In)Stability Real Interest Rate, R**

Gianluca Benigno, Ozge Akinci, Marco Del Negro and Albert Queralto

No 15436, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We introduce the concept of financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector measured by an increase in leverage are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial condition index and show how it is related to the gap between the natural and financial stability interest rates.

Keywords: R**; Financial crises; Occasionally binding credit constraint; Financial amplification (search for similar items in EconPapers)
JEL-codes: E41 F3 G01 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Related works:
Working Paper: The Financial (In)Stability Real Interest Rate, R** (2021)
Working Paper: The Financial (In)Stability Real Interest Rate, R** (2020)
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