The Financial (In)Stability Real Interest Rate, R**
We introduce the concept of 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. We discuss r** and its dynamics and show that persistently low real rates induce an increase in financial vulnerabilities and a consequent decline in the level of r**. We also provide a measure of r** for the US economy and discuss its evolution over the past 50 years, highlighting that during periods of financial stress that are associated with a decline in r** , the real rate tracks r** ---a feature of monetary policy known as ``Greenspan's put''.