The threshold interest rate above which the central bank triggers a problem of financial stability
I cannot tell if Jay Powell, the Federal Reserve chairman, will heroically win his fight against inflation in 2023, or ignominiously /HUMILIATING, DEGRADING/ lose it.
In a conversation with my hirsute friend David Zervos of Jefferies LLC, I detected mounting excitement that Powell might pull off the mythical soft landing: a rapid decline in inflation without a recession.
But on the same day I also discussed the issue with former Treasury Secretary Larry Summers, who dismissed a soft landing as the economic equivalent of Captain Chesley “Sully” Sullenberger landing US Airways Flight 1549 on the Hudson River after bird strikes took out both engines.
Another relevant economics paper is Akinci et al. on “the financial stability interest rate” (which they call r**, not to be confused with r*, the neutral interest rate) — the threshold interest rate above which the central bank triggers a problem of financial stability.
“Persistently low real rates induce an increase in financial vulnerabilities and a consequent decline in the level of r**,” the authors write.
“As the banking sector becomes more leveraged, the financial stability interest rate becomes lower. This has implications for monetary policy, in that even relatively low levels of the real interest rate could trigger financial instability.”
Niall Ferguson Bloomberg 18 december 2022
Englunds lag 3 (Inflation and the housing market)
Räntan (A) är vad som behövs för att stoppa inflationen.
Räntan (B) är den som gör att bostadsmarknaden kollapsar.
Om A är större än B har vi ett stort problem.
The interest rate (A) is what is needed to stop inflation.
The interest rate (B) is the one that causes the housing market to collapse.
If A is higher than B, we have a big problem.
Rolf Englund blogg 22 maj 2022
https://englundmacro.blogspot.com/2022/05/englunds-lag-3-inflation-and-housing.html
En sådan tur att det inte är en husprisbubbla i USA som det var 2008
The median home price almost tripled in the last 22 years
https://englundmacro.blogspot.com/2022/12/en-sadan-tur-att-det-inte-ar-en.html
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