Fiscal announcements may transfer information about the government’s view of the macroeconomic outlook to the private sector, diminishing the effectiveness of fiscal policy as a stabilization tool. We construct a novel dataset that combines daily data on Japanese stock prices with narrative...

Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield...

This paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the...

In his letter to US President Franklin D. Roosevelt Keynes (1933) wrote about "the technique of recovery itself". An increase in output is brought about by an increase in purchasing power, Keynes argues, which can come from three sectors: households, firms and government. Using the IS/MY...

We show that, in many countries, tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the...

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...

Does consumer sentiment change upon hearing news about fiscal budget deficit? Using U.S. consumer survey data from 1978 to 2018, we find consumer sentiment increases (decreases) significantly upon hearing favourable (unfavourable) fiscal deficit news. This effect is pervasive across our sample...

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...