FCI-star

Ricardo Caballero (), Tomás E. Caravello and Alp Simsek

No 33952, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Central banks rely on r∗—the neutral interest rate—to assess policy stance. However, monetary policy affects activity through broad financial conditions, not only the short-term rate. We propose FCI∗, the neutral level of a financial conditions index consistent with output at potential. Unlike r∗, FCI∗ is insulated from financial fluctuations: when asset prices move, FCI captures their estimated effect on output, leaving FCI∗ to reflect only what the macroeconomy requires. In U.S. data, r∗ co-moves with the equity premium; FCI∗ does not. FCI gaps provide useful real-time guidance on policy stance, especially when financial conditions diverge from the policy rate.

JEL-codes: C32 E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-ifn, nep-mac and nep-mon
Note: AP EFG ME
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33952.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33952

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33952
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().