The authors use a stylized model of the economy to analyze how permanent and temporary increases in government expenditure--and the timing of taxation used to finance them--affect aggregate output and other variables that describe the economy.

This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). The principal conclusions are that the...