The Financial (In)Stability Real Interest Rate, r**

We build a macro-finance model with an occasionally binding financing constraint where real interest rates have opposite effects on current and future financial stability, with the contemporaneous impact driven by valuation effects and the future impact driven by reach-for-yield by intermediaries. We use this model to illustrate the concept of the financial stability interest rate, r**, which we propose as a quantitative summary statistic for financial vulnerabilities. We provide a measure of r** for the US economy and discuss its evolution over the past 50 years.