We build and estimate a novel TANK model with partially unfunded debt to study whether the record high debt-to-GDP ratio threatens US inflation stability. In response to business cycle shocks, the monetary authority controls inflation, and the fiscal authority stabilizes debt. The central bank...

Announcing a large fiscal stimulus may signal the government’s pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and...

We show that policy uncertainty about how the rising public debt will be stabilized accounts for the lack of deflation in the US economy at the zero lower bound. We first estimate a Markov-switching VAR to highlight that a zero-lower-bound regime captures most of the comovements during the Great...