Government Stimulus Policies and Financial Stability Risks: A Literature Review

Abstract

This study examines how government stimulus policies influence financial stability during periods of severe economic disruption, with a focus on the mechanisms through which fiscal and monetary interventions shape risk-taking behavior, credit conditions, and systemic resilience. Using a systematic literature review of peer-reviewed studies published between 2017 and 2021, the article synthesizes empirical evidence on the effectiveness and unintended consequences of stimulus measures implemented during recent global crises. The review discusses how targeted fiscal support, liquidity facilities, and credit guarantees stabilized short-term financial conditions while also identifying risks associated with increased leverage, delayed restructuring, and uneven policy absorption across firms. The findings show that stimulus programs are essential for crisis mitigation but must be complemented by strong regulatory oversight and macroprudential coordination to prevent long-term vulnerabilities. This study contributes to ongoing debates by clarifying the trade-offs between short-term stabilization and sustainable financial system resilience.