Fiscal Sustainability and the Financial Cycle

30 Pages Posted: 8 Apr 2016

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Fabrizio Zampolli

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: March 2016

Abstract

A frequently neglected aspect of financial booms and busts - financial cycles - is their impact on fiscal positions. And yet, the latest financial crisis and history show that these cycles can wreak havoc with public finances. After reviewing the impact of financial cycles on fiscal positions, we offer a new tool to estimate cyclically adjusted balances, illustrate its performance, explore its strengths and weaknesses, and sketch out a way forward to measuring sustainability in a more holistic way.

Keywords: financial cycle, financial crisis, cyclically adjusted fiscal balance

JEL Classification: H30, H62, E44, E52, E60

Suggested Citation

Borio, Claudio E.V. and Lombardi, Marco Jacopo and Zampolli, Fabrizio, Fiscal Sustainability and the Financial Cycle (March 2016). BIS Working Paper No. 552, Available at SSRN: https://ssrn.com/abstract=2752560

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Marco Jacopo Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Fabrizio Zampolli

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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