Derivatives, Fiscal Policy and Financial Stability

Savona, Paolo and Oldani, Chiara (2005) Derivatives, Fiscal Policy and Financial Stability. Journal of Derivatives, 2 (3). p. 7-25.

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The massive use of derivatives and securitisation by sovereign States for public debt and deficit management is a growing phenomenon in financial markets. Financial innovation can modify risks effectively run and alter the stability of the public sector finance. The experience of some developed and developing countries is surveyed to look at main instruments used and aims of public finance. Financial stability of the public sector is analysed considering financial innovation use. The case of Italy and its scarce disclosure of information are presented. An IS-LM model is used to capture the effect of financial innovation on fiscal policy for high indebted (European) industrialised countries, with deficit constraints, starting from Blanchard (1981). The use of financial innovation can have various effects over debt and deficit management, given binding external burden (like the European criteria) as far as risks are properly considered, expectations of fiscal policy are coherent with that of markets, and no exogenous shock occurs

Item Type: Article
Research documents and activity classification: Journal Articles > Articles > Articles published in or submitted to a Journal without IF
Divisions: Department of Business and Management
Uncontrolled Keywords: Fiscal policy. Financial stability. Derivatives and securitisation. Politica fiscale.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/02 Economic Policy
Deposited by: Silvia Capobianchi
Date Deposited: 30 Jun 2009 09:37
Last Modified: 21 Apr 2015 23:10


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