The role of fiscal policy in ensuring financial stability in Lithuania

Abstract

Paper describes the role of fiscal policy ensuring financial stability. The main purpose of the paper is to calculate the aggregate financial stability index, which can be used to measure the systematic financial stability. Literature reviews the main concepts of financial stability, such as combination of fiscal and monetary policy. It presupposes the importance of adapting the fiscal policy. The paper reveals the substantial effects that fiscal policy instruments do to financial stability of the country, moreover it shows that well considered public finance decisions helps to implement the stabilization targets of the financial system. There is calculated aggregate general financial stability index and performed its dependence correlation – regression analysis on the indicators of fiscal policy of Lithuania.