Artikel
Effects of fiscal instability on financial instability
This paper empirically examines how fiscal instability affects financial instability. According to an IMF forecast (2021a), the fiscal space in Korea will be steadily reduced in the future. The theoretical literature predicts that if fiscal stability is undermined, financial stability will also be in danger given that government guarantees on banks are weakened and/or sovereign bonds held in banks become riskier. This paper empirically finds the existence of this negative impact of fiscal instability on financial instability. I also find that the intensity of this fiscal-financial relationship is greater in a country where (i) its currency is not a reserve currency such as the US dollar or euro, (ii) its banking sector is large relative to government sector, and/or (iii) its private credit to GDP is high. Korea has all of these three characteristics and hence needs to put more effort into maintaining fiscal stability.
- Language
-
Englisch
- Bibliographic citation
-
Journal: KDI Journal of Economic Policy ; ISSN: 2586-4130 ; Volume: 44 ; Year: 2022 ; Issue: 3 ; Pages: 49-74 ; Sejong: Korea Development Institute (KDI)
- Classification
-
Wirtschaft
Financial Crises
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
National Budget, Deficit, and Debt: General
- Subject
-
Fiscal Instability
Financial Instability
Sovereign Bond
Implicit Government Guarantees
Noncore Currency
- Event
-
Geistige Schöpfung
- (who)
-
Hwang, Sundoo
- Event
-
Veröffentlichung
- (who)
-
Korea Development Institute (KDI)
- (where)
-
Sejong
- (when)
-
2022
- DOI
-
doi:10.23895/kdijep.2022.44.3.49
- Handle
- Last update
- 10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Hwang, Sundoo
- Korea Development Institute (KDI)
Time of origin
- 2022
Other Objects (12)
Linkages Between Fiscal Policy and Financial (In)Stability
Modeling financial instability
Net worth ratio and financial instability
Monetary policy and financial (in)stability
Currency trading and international financial instability
Special Symposium on "Financial instability and crisis"
The fiscal costs of financial instability revisited
The fiscal costs of financial instability revisited
Financial networks as a source of systemic instability
What Predicts Financial (In)Stability? A Bayesian Approach
Financial instability and banks' balance sheets: A note
The structure of financial systems and macroeconomic instability
Linkages Between Fiscal Policy and Financial (In)Stability
Modeling financial instability
Net worth ratio and financial instability
Monetary policy and financial (in)stability
Currency trading and international financial instability
Special Symposium on "Financial instability and crisis"
The fiscal costs of financial instability revisited
The fiscal costs of financial instability revisited
Financial networks as a source of systemic instability
What Predicts Financial (In)Stability? A Bayesian Approach
Financial instability and banks' balance sheets: A note
The structure of financial systems and macroeconomic instability
Linkages Between Fiscal Policy and Financial (In)Stability
Modeling financial instability
Net worth ratio and financial instability
Monetary policy and financial (in)stability
Currency trading and international financial instability
Special Symposium on "Financial instability and crisis"
The fiscal costs of financial instability revisited
The fiscal costs of financial instability revisited
Financial networks as a source of systemic instability
What Predicts Financial (In)Stability? A Bayesian Approach
Financial instability and banks' balance sheets: A note