Price stability, financial stability and fiscal sustainability are part of the necessary conditions for the balanced development of an economy in the longer run. They can be considered as pillars on which the ‘economic house’ is built. Weakness or fragility of one pillar -e.g. inflation well above target, overvalued asset prices or a high and rising public debt ratio - may impact the solidity of the other pillars and weaken the overall structure. This gives rise to a debate about the nexus between these three conditions. Given these interactions, it is important that each policy -monetary, fiscal, financial stability oriented- is conducted in a way that takes into account its influence on the other objectives. This should enhance overall economic stability.

Price stability, financial stability and fiscal sustainability are part of the necessary conditions for the balanced development of an economy in the longer run.

Price stability corresponds to a rate of inflation that on a sustained basis is in line with the objective of the central bank. The definition of financial stability is more complex. According to the IMF, it refers to the ability of the financial system to perform three tasks. Firstly, facilitating an “efficient allocation of economic resources—both spatially and especially intertemporally—and the effectiveness of other economic processes (such as wealth accumulation, economic growth, and ultimately social prosperity)”. Secondly, assessing, pricing, allocating and managing financial risks. Thirdly, maintaining “its ability to perform these key functions—even when affected by external shocks or by a buildup of imbalances—primarily through self-corrective mechanisms.”

Finally, fiscal sustainability can be associated with a stable public debt to GDP ratio. However, other aspects should also be taken into account: the ratio of debt service to fiscal revenues, the foreign currency share of foreign debt, the sensitivity of debt dynamics to interest rate and growth shocks, the expected impact of population ageing on health care expenditures and pension payments, etc.

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Editors’ Picks

EUR/USD trims gains, back below 1.1800

EUR/USD trims gains, back below 1.1800

EUR/USD now loses some upside momentum, returning to the area below the 1.1800 support as the Greenback manages to regain some composure following the SCOTUS-led pullback earlier in the session.

GBP/USD off highs, recedes to the sub-1.3500 area

GBP/USD off highs, recedes to the sub-1.3500 area

Following earlier highs north of 1.3500 the figure, GBP/USD now faces some renewed downside pressure, revisiting the 1.3490 zone as the US Dollar manages to regain some upside impulse in the latter part of the NA session on Friday.

USD/JPY sticks to gains above 155.00, over one-week top ahead of US data

USD/JPY sticks to gains above 155.00, over one-week top ahead of US data

The USD/JPY pair gains positive traction for the third straight day and climbs to over a one-week top, around the 155.35-155.40 region. Data released early today showed that Japan’s key inflation gauge eased to the slowest pace in two years, tempering expectations for an immediate policy tightening by the Bank of Japan.


Editors’ Picks

EUR/USD: US Dollar comeback in the makes?

EUR/USD: US Dollar comeback in the makes? Premium

The US Dollar (USD) stands victorious at the end of another week, with the EUR/USD pair trading near a four-week low of 1.1742, while the USD retains its strength despite some discouraging American data released at the end of the week.

Gold: Escalating geopolitical tensions help limit losses

Gold: Escalating geopolitical tensions help limit losses Premium

Gold (XAU/USD) struggled to make a decisive move in either direction this week as it quickly recovered above $5,000 after posting losses on Monday and Tuesday.

GBP/USD: Pound Sterling braces for more pain, as 200-day SMA tested

GBP/USD: Pound Sterling braces for more pain, as 200-day SMA tested Premium

The Pound Sterling (GBP) crashed to its lowest level in a month against the US Dollar (USD), as critical support levels were breached in a data-packed week.

Bitcoin: No recovery in sight

Bitcoin: No recovery in sight

Bitcoin (BTC) price continues to trade within a range-bound zone, hovering around $67,000 at the time of writing on Friday, and falling slightly so far this week, with no signs of recovery.

US Dollar: Tariffed. Now What?

US Dollar: Tariffed. Now What? Premium

The US Dollar (USD) reversed its previous week’s decline, managing to stage a meaningful rebound and retesting the area just above the 98.00 barrier when tracked by the US Dollar Index (DXY).

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