Financial Vulnerability and Macroeconomic Fragility

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

No 20230522, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: What is the effect of a hike in interest rates on the economy? Building on recent research, we argue in this post that the answer to this question very much depends on how vulnerable the financial system is. We measure financial vulnerability using a novel concept—the financial stability interest rate r** (or “r-double-star”)—and show that, empirically, the economy is more sensitive to shocks when the gap between r** and current real rates is small or negative.

Keywords: financial crises; nonlinear dynamics; shocks; financial stability (search for similar items in EconPapers)
JEL-codes: E51 E52 G2 G21 (search for similar items in EconPapers)
Date: 2023-05-22
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mon
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