IDEAS home Printed from https://ideas.repec.org/h/elg/eechap/21915_9.html
   My bibliography  Save this book chapter

Fiscal policy and financial stability: revisiting the nexus

In: Fiscal Policy in a Turbulent Era

Author

Listed:
  • Claudio Borio
  • Marc Farag
  • Fabrizio Zampolli

Abstract

Fiscal policy is key to preserving macro-financial stability. This chapter explains why. It first describes the channels through which sovereign and financial risks can become mutually reinforcing, giving rise to so-called “doom loops”. The chapter then discusses how to lessen or break these loops. Action on two fronts is required. First, financial stability considerations should be incorporated into the design of fiscal policy so as to prevent financial instability from undermining fiscal sustainability and to protect the room for manoeuvre to address any eventual financial crises. Second, prudent regulation of financial institutions should acknowledge that public debt is not entirely risk free and should therefore include measures to discourage or limit banks’ sovereign exposures, although with due regard to the special role of government debt in the financial system and country-specific characteristics.

Suggested Citation

  • Claudio Borio & Marc Farag & Fabrizio Zampolli, 2024. "Fiscal policy and financial stability: revisiting the nexus," Chapters, in: Enrique Alberola (ed.), Fiscal Policy in a Turbulent Era, chapter 9, pages 139-153, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21915_9
    as

    Download full text from publisher

    File URL: https://www.elgaronline.com/doi/10.4337/9781035300563.00019
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:elg:eechap:21915_9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Darrel McCalla (email available below). General contact details of provider: http://www.e-elgar.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.