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 946, Staff Reports from Federal Reserve Bank of New York

Abstract: We build a macro-finance model with an occasionally binding financing constraint where real interest rates have opposite effects on current and future financial stability, with the contemporaneous impact driven by valuation effects (akin to those triggering the 2023 banking turmoil) and the future impact driven by reach-for-yield by intermediaries. We use this model to illustrate the concept of the financial stability interest rate, r**, which we propose as a quantitative summary statistic for financial vulnerabilities. We provide a measure of r** for the U.S. economy and discuss its evolution over the past fifty years.

Keywords: r**; financial crises; financial stability; occasionally binding constraints (search for similar items in EconPapers)
JEL-codes: E4 E5 G0 (search for similar items in EconPapers)
Pages: 41
Date: 2020-11-01
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
Note: Revised May 2023.
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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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