On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability

Maurice Obstfeld

No 9563, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Banking systems have rapidly grown to a point where for many countries bank assets amount to multiples of GDP. As a consequence, government?s 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.

Keywords: Bank resolution; Banking crisis; Financial crisis; Financial stability; Fiscal policy; Monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E58 E63 F62 G15 G28 (search for similar items in EconPapers)
Date: 2013-07
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Citations: View citations in EconPapers (30)

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Journal Article: On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability (2013)
Working Paper: On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability (2013)
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