About the Bank for International Settlements
The Bank for International Settlements (BIS) is an international financial institution whose primary aim is to serve central banks in their pursuit of monetary and financial stability. It is headquartered in Basel, Switzerland and is commonly known for its distinctive tower, as shown in the image below.
The Bank for International Settlements
Standard Measures of Fiscal Sustainability: A BIS Perspective
According to a recent research study published by the BIS, standard measures of fiscal sustainability may not always provide an accurate picture. The study finds that these measures often overlook the ways in which financial markets can amplify stress, making them potentially misleading.
New Framework for Assessing Fiscal Sustainability
The working paper, published by the BIS on March 26, proposes a new framework for assessing fiscal sustainability. This framework incorporates financial intermediation and market dynamics into the analysis, addressing some of the shortcomings of the standard measures. Key elements of this new framework include the sovereign-bank nexus, exchange rates, and the effects of duration matching.
Implications of the New Framework
The new framework proposed by the BIS offers a more comprehensive approach to understanding fiscal sustainability. By taking into account the dynamic nature of financial markets, it provides a more accurate gauge of potential financial stress. This could help policymakers make more informed decisions and potentially mitigate the impacts of financial instability.
As the working paper highlights, standard metrics for assessing fiscal sustainability often fail to adequately reflect the potential impact of financial instability. This research underscores the importance of incorporating a broader range of factors into assessments of fiscal sustainability, a perspective that could significantly influence future policy discussions and decision-making processes.
Accessing the Full BIS Paper
If you wish to delve deeper into the details of this study, it is important to note that only users with a paid subscription or a corporate subscription have access to the full content. You can find out more about subscription options here.
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To learn more about the new BIS framework and the research paper, you can access the source here.
