Fiscal Sustainability and the Financial Cycle

Borio, Claudio; Lombardi, Marco; Zampolli, Fabrizio

doi:10.1017/9781316675861.013

Cited by 22 publications

(17 citation statements)

References 68 publications

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“…The financial crises of 1997/1998 and 2007/2008 have given important lessons for many countries about the emergence of crises which have never existed in the history of developing countries. Other lessons learned are the effects of the crises on public finances and reciprocal relation between financial system and financial health of the government (Bario et al, 2016). The crises also teach people about the role of fiscal policy (such as fiscal stimulus) and external influences on internal and external balances of a country.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Twin Shock on Fiscal Sustainability in Indonesia

Insukindro¹

2018

Economics &Amp; Sociology

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This paper analyzes the behaviour of fiscal sustainability in Indonesia by using stationarity and cointegration tests and analyzing fiscal reaction function in Indonesia during the period of 2001-2016. It employed economic fluctuations and unanticipated exchange rates to observe the effect of twin shock on fiscal reaction function. In addition, it applied VECM (Vector Error Correction Model) to cover and estimate the behaviour of fiscal reaction function in Indonesia. The VECM is a restricted VAR specified for use with cointegrated series and has nice interpretation with short-and long-run relationships. Based on the stationarity test, cointegration and fiscal reaction function, the results indicate that there is the fiscal sustainability of the variables used, namely the foreign debt and the public sector primary deficit in the short and long term. The study indicates that the primary deficit is a key determinant of the external debt. These findings also reveal that the efforts of fiscal authorities to optimize the domestic financing sources should be supported because they can reduce the external debt and maintain the fiscal sustainability. In addition, in the long term, economic fluctuations and foreign exchange rate fluctuations have a positive effect on the external debt in Indonesia.

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Section: Introductionmentioning

confidence: 99%

The Effect of Twin Shock on Fiscal Sustainability in Indonesia

Insukindro¹

2018

Economics &Amp; Sociology

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“…Recent contributions on this dimension include the work byBorio et al (2013Borio et al ( , 2015,Liu et al (2015) outlining operational approaches to the impact of asset price cycles in the calculation of output gaps and structural balances and, DeManuel and Raciborski (2015) showing the importance of the credit and house price cycles for the estimation of the output gap in Ireland.…”

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confidence: 99%

Financial Cycles and Fiscal Cycles

Lane

2017

Rethinking Fiscal Policy After the Crisis

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There is an extensive literature on the behaviour of fiscal variables vis-à-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.

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“…The contribution of the construction sector and the second-round contribution to GDP may increase temporarily. However, if the amplification mechanism leads to an asset price and credit boom that proves to be unsustainable in the long run, the excessive expansion in the construction sector and the affiliated activities translate into a suboptimal allocation of resources, the negative legacy of which may cast a long shadow over the growth potential of the economy after the bursting of the bubble (see, for example, Borio et al 2016). Anundsen -Jansen (2013) Empirical literature provides evidence that excessive household indebtedness increases the probability of real estate market imbalances and the evolution of severe financial crises.…”

Section: Studiesmentioning

confidence: 99%

Experiences of Debt Cap Regulations in Hungarian Retail Lending

Fáykiss¹,

Palicz²,

Szakács³

et al. 2018

Hitelintézeti szemle

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The 2008 financial crisis underlined that, on the one hand, the operation of the banking sector is highly procyclical and, on the other hand, household borrowers are unable to assess their long-term ability to repay realistically. The resultant excessive risk-taking and inadequate risk assessment by banks brought, in Hungary as well, substantial losses for banks and a high rate of distressed customers. Through the enforcement of debt cap rules, the MNB as a macroprudential authority has been limiting the recurrence of excessive household indebtedness in a preventive manner since 2015. Focusing on international practices and the results of Hungarian regulations in the first two and a half years, we reviewed the Hungarian experiences with regard to the debt cap rules. Although we can only draw preliminary conclusions due to the shortness of the period elapsed since the introduction of the debt cap rules, our analysis demonstrates that, in line with their calibration, Hungarian debt cap rules currently do not restrict sustainable lending processes, and contribute significantly to promoting a healthy lending structure by restraining excessively risky loans.

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Fiscal Sustainability and the Financial Cycle

Cited by 22 publications

References 68 publications

The Effect of Twin Shock on Fiscal Sustainability in Indonesia

The Effect of Twin Shock on Fiscal Sustainability in Indonesia

Financial Cycles and Fiscal Cycles

Experiences of Debt Cap Regulations in Hungarian Retail Lending

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