Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241139 
Year of Publication: 
2020
Series/Report no.: 
Staff Report No. 946
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We introduce the concept of a 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 conditions index and show how it is related to the gap between the natural and financial stability interest rates.
Subjects: 
r**
financial crises
financial stability
occasionally binding credit constraint
JEL: 
E4
E5
G0
Document Type: 
Working Paper

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