We shed light on the function, properties and optimal size of austerity using the standard sovereign model augmented to … include incomplete information about credit risk. Austerity is defined as the shortfall of consumption from the level desired … by a country and supported by its repayment capacity. We find that austerity serves as a tool for securing a more …

, little is known about the investment objectives and performance of sovereign wealth funds. We collect new data on foreign … industries at home but that they do so predominantly in countries that share the same culture, suggesting their investment rules … are not entirely driven by profit maximizing objectives. Share prices of firms respond favorably when sovereign investment …

, public asset accumulation, and the distribution of funds to households (across time and household types), particularly when …

sovereign default premia, government consumption, and output. We find that whether austerity pays off depends on a) initial … premia in benign times. These findings pertain to the short run. Austerity always pays off in the long run, but particularly …

After the Global Financial Crisis a controversial rush to fiscal austerity followed in many countries. Yet research on … the effects of austerity on macroeconomic aggregates was and still is unsettled, mired by the difficulty of identifying … novel approach, we show that austerity is always a drag on growth, and especially so in depressed economies: a one percent …

, Canada, Japan, and the UK. We identify shocks in government consumption, investment, vacancies and government wages in a SVAR … consumption and investment demand. On the other hand, government wage cuts are the least destructive device for cutting the budget. …