International Liquidity: The Fiscal Dimension

30 Pages Posted: 21 Sep 2011

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: September 2011

Abstract

This paper argues that if policymakers seek to enhance global liquidity, then the international community must provide a higher and better coordinated level of fiscal support than it has in the past. Loans to troubled sovereigns or financial institutions imply a credit risk that ultimately must be lodged somewhere. Expanded international lending facilities, including an expanded IMF, cannot remain unconditionally solvent absent an expanded level of fiscal backup. The same point obviously applies to the European framework for managing internal sovereign debt problems, including proposals for a jointly guaranteed eurozone sovereign bond. Even attainment of a significant role for the Special Drawing Right depends upon enhanced fiscal resources and burden sharing at the international level.

Suggested Citation

Obstfeld, Maurice, International Liquidity: The Fiscal Dimension (September 2011). NBER Working Paper No. w17379. Available at SSRN: https://ssrn.com/abstract=1931149

Maurice Obstfeld (Contact Author)

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