The authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity … consolidation inevitable, there is considerable uncertainty about the policy mix and timing of such budgetary adjustment. To … evaluate the consequences of this increased uncertainty, the authors first estimate tax and spending processes for the U …

-insure against the risk of not being able to use credit in some transactions. The authors consider a (nonlinear) monetary mechanism …

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 rest of the economy, raising funding costs in the private sector. The … model. They show that, if monetary policy is constrained in offsetting the effect of higher sovereign risk on private …