Thread by @marcodelnegro

What is the relationship between interest rates, financial stability, and the macroeconomy? In a three post series with 
@ozgeakinci @BenignoGianluca Ethan Nourbash and @Albert_Queralto  we look into this arguably timely question #interestrates #monetarypolicy #financialstability

In the first post Financial Vulnerability and Macroeconomic Fragility we argue that the effects of an increase in interest rates on the macroeconomy depends on how vulnerable the financial system is libertystreeteconomics.newyorkfed.org/2023/05/financ… 2/n

We also propose a new measure of financial system vulnerability, the Financial (In)Stability Real Interest Rate, r**, based precisely on the question: How large an interest rate increase can the financial system take before entering a crisis?
newyorkfed.org/medialibrary/m… 3/n

We also show empirically that the sensitivity of the economy to interest rates shocks indeed depends on the gap between r** and r libertystreeteconomics.newyorkfed.org/2023/05/financ… 4/n

In the second post Financial Stability and Interest Rates we argue that interest rates have very different consequences for current versus future financial stability, generating a potential intertemporal trade-off for policy  libertystreeteconomics.newyorkfed.org/2023/05/financ…

In the short run, lower real rates mean higher net worth for financial institutions. But in the long run persistently low interest rates may make the financial system more vulnerable 6/n libertystreeteconomics.newyorkfed.org/2023/05/financ…

In libertystreeteconomics.newyorkfed.org/2023/05/measur… we measure r** in the US economy over the past fifty years, show that since 2000 the r**-r gap has been much smaller than before and sometimes negative eg during the financial crisis and discuss the recent banking turmoil through the lenses of our model

Among us, we called the three post series "the r** trilogy"🤣 , the name inspired by this beautiful book I just read nytimes.com/2020/06/29/boo… n/n