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Financial Cycles and Fiscal Cycles

Agustín Bénétrix () and Philip Lane

Economic Papers from Trinity College Dublin, Economics Department

Abstract: There is an extensive literature on the behaviour of fiscal variables vis-a-vis the output cycle. We show that fiscal variables also co-vary with the financial cycle, as captured by fluctuations in the current account balance and credit growth. These financial factors affect fiscal outcomes, over and above their influence on the output cycle. We argue that fiscal surveillance and the design of fiscal rules should pay close attention to the interaction between the financial cycle and the fiscal cycle.

Pages: 34 pages
Date: 2015-12
New Economics Papers: this item is included in nep-acc, nep-mac and nep-opm
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