Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield...

Policy makers often implement austerity measures when the sustainability of public finances is in doubt and, hence, sovereign yield spreads are high. Is austerity successful in bringing about a reduction in yield spreads? We employ a new panel data set which contains sovereign yield spreads for...

The authors analyze the effects of government spending cuts on economic activity in an environment of severe fiscal strain, as reflected by a sizeable risk premium on government debt. Specifically, they consider a 'sovereign risk channel,' through which sovereign default risk spills over to the...

This paper proposes a fiscal policy framework we call Public Debt Targeting. The framework seeks to smooth primary spending over the business cycle while remaining consistent with public debt sustainability. Under the proposed framework, a government announces a commitment to a public debt band...

This paper studies how fiscal policy affects loan market conditions. First, it conducts a Structural Vector-Autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results...