The Fiscal Footprint of Macroprudential Policy

37 Pages Posted: 15 Jun 2020 Last revised: 18 Nov 2021

See all articles by Ricardo Reis

Ricardo Reis

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: 2020

Abstract

Monetary policy leaves a fiscal footprint. In some circumstances, relieving the fiscal burden becomes the main goal of policy, and inflation control is subordinate. This article notes that the same is true of macroprudential policy, and it characterizes the size and sign of its fiscal footprint, as well as the states of the world in which the temptation for fiscal goals to dominate may be higher. Macroprudential policies that increase the demand for government bonds by banks directly lower the cost of rolling over public debt, but decrease lending, real activity, and tax collections. They lower the incidence and fiscal cost of a financial crisis, but they may make a fiscal crisis more likely.

Keywords: financial crisis, sovereign default, diabolic loop, capital and liquidity regulation

JEL Classification: E58, E62, G01, G28, H63

Suggested Citation

Reis, Ricardo A.M.R., The Fiscal Footprint of Macroprudential Policy (2020). Available at SSRN: https://ssrn.com/abstract=3627027 or http://dx.doi.org/10.2139/ssrn.3627027

Ricardo A.M.R. Reis (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
365
rank
403,264
PlumX Metrics