Last Friday I attended a conference at the NY Federal Reserve. The topic of the conference was financial stability and monetary policy. There were a slew of interesting presentations: Brainard’s interesting speech on cross-border spillovers, a Kristen Forbes led policy panel and a very interesting new paper from Tobias Adrian (IMF). However, the presentation and new paper that stood out to me was on this idea of r**, r double star. The authors (Akinci, Benigno, Del Negro, Queralto) from the NY Fed presented on the idea of a financial stability neutral real interest rate. The idea is that there is a r**, a financial stability r* that is not the same per se as the economic level of neutral interest rates (r*). While central banks can't really afford to make trade offs when inflation is so high, the idea of this gap between financial r* and economic r*, or multiple equilibrium within the financial and real economy, is really interesting and I think very prevalent to where we are today.
© 2024 Jonathan Turek
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