Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro...

This paper considers the magnitude of the U.S. fiscal imbalance, as measured by the permanent changes needed to stabilize the national debt as a share of GDP. At present, even after recent improvements in forecast deficits, this imbalance stands at 5.3 percent of GDP -- several times the...

This paper considers the magnitude of the U.S. fiscal imbalance, as measured by the permanent changes needed to stabilize the national debt as a share of GDP. At present, even after recent improvements in forecast deficits, this imbalance stands at 5.3 percent of GDP -- several times the...

Any fiscal path is sustainable if future fiscal policy responds sufficiently to high deficits. Previous work found that Congress reduced the deficit during 1984-2003 when projected deficits rose. We find that this year-to-year feedback has disappeared: Congress on average during 2004-2024 did...

We provide new estimates of the federal budget outlook over 10-year and long-term horizons under three sets of assumptions: the Congressional Budget Office baseline, which assumes no changes in current law; an extended policy scenario, in which it is assumed that future Congresses act more or...