Contents

Effects of Fiscal Instability on Financial Instability

Sunjoo, Hwang

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dc.contributor.authorSunjoo, Hwang-
dc.date.accessioned2022-09-02T01:20:09Z-
dc.date.available2022-09-02T01:20:09Z-
dc.date.issued2022-08-
dc.identifier.urihttps://archives.kdischool.ac.kr/handle/11125/43738-
dc.description.abstractThis 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.en_US
dc.languageengen_US
dc.publisherKorea Development Instituteen_US
dc.titleEffects of Fiscal Instability on Financial Instabilityen_US
dc.typeArticleen_US
dc.identifier.bibliographicCitationKDI Journal of Economic Policy, vol. 44, no. 3, pp. 49-74-
dc.citation.endPage74en_US
dc.citation.number3en_US
dc.citation.startPage49en_US
dc.citation.titleKDI Journal of Economic Policyen_US
dc.citation.volume44en_US
dc.identifier.doihttps://doi.org/10.23895/kdijep.2022.44.3.49-
dc.subject.keywordFiscal Instability; Financial Instability; Sovereign Bond; Implicit Government Guarantees; Noncore Currencyen_US
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