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

Ozge Akinci, Gianluca Benigno, Marco Del Negro and Albert Queraltó
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Albert Queraltó: https://www.federalreserve.gov/econres/albert-queralto.htm

No 1308, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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; Financial stability; Occasionally binding credit constraint (search for similar items in EconPapers)
JEL-codes: E40 E50 G00 (search for similar items in EconPapers)
Date: 2021-01-29
New Economics Papers: this item is included in nep-ban, nep-cwa and nep-mac
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https://www.federalreserve.gov/econres/ifdp/files/ifdp1308.pdf (application/pdf)

Related works:
Working Paper: The Financial (In)Stability Real Interest Rate, R** (2020)
Working Paper: The Financial (In)Stability Real Interest Rate, R** (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1308

DOI: 10.17016/IFDP.2021.1308

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