On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability
AbstractBanking systems have rapidly grown to a point where for many countries bank assets amount to multiples of GDP. As a consequence, governmentfs capacity to provide stability-enhancing fiscal guarantees against systemic crises can no longer be taken for granted. As regulation of dynamic financial markets will inevitably be imperfect, prudent governments need to adjust other facets of macroeconomic policy in order to mitigate financial instability. A precautionary approach to fiscal policy, leading to moderate levels of public debt relative to GDP over the medium term, is essential for the credibility of government promises to support the financial system, as well as the broader economy.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 13-E-08.
Date of creation: Sep 2013
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Fiscal policy; Financial stability; Monetary policy; Financial crisis; Banking crisis; Bank resolution;
Other versions of this item:
- Maurice Obstfeld, 2013. "On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 31, pages 25-38, November.
- Obstfeld, Maurice, 2013. "On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability," CEPR Discussion Papers 9563, C.E.P.R. Discussion Papers.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
- NEP-BAN-2013-10-02 (Banking)
- NEP-MAC-2013-10-02 (Macroeconomics)
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