Nordic Economic Policy Review Number 1 / 2010

Fiscal Consequences of the Crisis

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The Nordic Economic Policy Review is published by the Nordic Council of Ministers and addresses policy issues in a way that is useful for informed non-specialists as well as for professional economists. All articles are commissioned from leading professional economists and are subject to peer review prior to publication. The Nordic Economic Policy Review is published twice a year. The journal is distributed free of charge to members of the Nordic economic associations. The easiest way of subscribing to the NEPR is therefore to become a member of one of these associations, i.e., Denmark: Nationaløkonomisk Forening Finland: Taloustieteellinen Yhdistys Norway: Samfunnsøkonomene Sweden: Nationalekonomiska Föreningen For institutional subscriptions, please contact [email protected] Content: Introduction: Fiscal consequences of the crisis - Torben M. Andersen and Steinar Holden. Some lessons for fiscal policy from the financial crisis - Philip R. Lane. Fiscal policy and macroeconomic stability: New evidence and policy implications - Xavier Debrun and Radhicka Kapoor. Fiscal sustainability in the wake of the financial crisis - Torben M. Andersen. Fiscal policy and labor markets at times of public debt - Giuseppe Bertola. Fiscal costs of financial sector support: Measures and implications for fiscal policy - Daehaeng Kim and Manmohan S. Kumar. Monetary implications of the crisis: Dominance at stake - Charles Wyplosz. The Swedish fiscal policy framework - Robert Boije, Albin Kainelainen and Jonas Norlin.



Fiscal costs of financial sector support: Measures and Implications

In response to the global economic and financial crisis, many countries provided significant support to their financial sectors to prevent systemic failure and stabilize market conditions. While the magnitude and nature of support measures varied markedly across countries, with a preponderance of support in advanced countries, interventions were unusually bold and speedy. Actual utilization has been generally low, reflecting the precautionary nature of initial pledges, the need to err on the side of caution, and effectiveness of the initial responses. Despite relatively low recovery to date, the net budgetary cost of the financial sector support measures is likely to be below historical norms. This reflects the fact that support from the budget, such as capital injections and asset purchases, has been limited compared to past episodes, augmented by extensive use of containment measures as well as large fiscal and monetary expansions. However, the broader measures of the costs of the crisis, in terms of the fiscal impact of induced recessions and real economy costs, are estimated to be very high, thereby leading to a projected public debt surge in advanced G-20 economies.


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