The interaction between monetary and fiscal policy and the associated uncertainty about this interaction have been put on center stage by the recent financial crisis and the associated recession. In our model agents learn about both fiscal and monetary policy rules via the Kalman Filter. In...

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...

Using VAR analysis on US data, we show that unanticipated fiscal expansions boost private consumption and business formation. Models with an extensive investment margin, i.e. endogenous firm and product entry, have difficulties explaining these two phenomena simultaneously. Considering different...

This paper analyzes the effects of short-time work (i.e., government subsidized working time reductions) on unemployment and output fluctuations. The central question is whether short-time work saves jobs in recessions. In our baseline scenario the rule based component of short-time work (i.e.,...

In this paper, we use the estimated three-region DSGE model GEAR, which pictures Germany, the Euro Area and the Rest of the world and which is used by the Deutsche Bundesbank for policy analysis, to analyze how discretionary fiscal policy in Germany and the rest of EMU affected GDP growth and...

Between 1999 and the onset of the economic crisis in 2008 real exchange rates in Greece, Ireland, Italy, Portugal and Spain appreciated relative to the rest of the euro area. This divergence in competitiveness was reflected in the emergence of current account imbalances. Given that exchange rate...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they...

We investigate the political determinants of risk premiums which sub-national governments in Switzerland have to pay for their sovereign bond emissions. For this purpose we make use of financial market data from 288 tradable cantonal bonds in the period from 1981 to 2007. Our main focus is on...

This paper deals with fiscal policy over the business cycle when international financial markets are imperfect. I document evidence that government expenditure tends to be more procyclical the higher is the borrowing cost for a sovereign. Decomposing government expenditure components shows that...

In 2009, Germany invested 15.4 Billion Euro in infrastructure to avert the looming recession. In this study, we evaluate whether the German stimulus program was successful in limiting the impact of the crisis on the job market. We exploit exogenous cross-sectional variation to identify the...