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

Maurice Obstfeld

Monetary and Economic Studies, 2013, vol. 31, 25-38

Abstract: Banking systems have rapidly grown to a point where, for many countries, bank assets amount to multiples of GDP. As a consequence, governments' capacities 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 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: Fiscal policy; Financial stability; Monetary policy; Financial crisis; Banking crisis; Bank resolution (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (31)

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Working Paper: 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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