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

Posted: 24 Jul 2013

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: July 2013

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

JEL Classification: E44, E58, E63, F62, G15, G28

Suggested Citation

Obstfeld, Maurice, On Keeping Your Powder Dry: Fiscal Foundations of Financial and Price Stability (July 2013). CEPR Discussion Paper No. DP9563. Available at SSRN: https://ssrn.com/abstract=2297202

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-9646 (Phone)
510-642-6615 (Fax)

HOME PAGE: http://emlab.berkeley.edu/users/obstfeld/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
517
PlumX Metrics