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

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More from @marcodelnegro

Nov 8, 2022
@pilossopher @paulgp Usually when I see some attention-seeking garbage on twitter I just move on. But since you ask, @pilossopher, and since you find this stuff interesting, @paulgp ... 1/n
@pilossopher @paulgp first, they generate data from the SW model and then use an R-pckge to find the mode. The results are not that surprising—it takes a lot of data to nail the true parameters, and for some you may not succeed at all even w lots of data because the model is not well identified 2/n
@pilossopher @paulgp Which is why reasonable people would never just look at the mode but explore the entirety of the posterior distribution—if the data are uninformative the posterior uncertainty would tell you just that. But I guess this subtlety escapes our esteemed authors 3/n
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