Fiscal Stimulus under Sovereign Risk

• 成果类型: Article
• 署名作者: Bianchi, Javier; Ottonello, Pablo; Presno, Ignacio
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Minneapolis; University of Michigan System; University of Michigan; National Bureau of Economic Research; Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: JOURNAL OF POLITICAL ECONOMY
• ISSN/ISSBN: 0022-3808
• DOI: 10.1086/724317
• 发表日期: 2023
• 页码: 2328-2369
• 关键词: policy; debt; monetary; default; income; rates; MODEL

摘要

What is the optimal fiscal policy response to a recession when the government is subject to sovereign risk? We study this question in a model of endogenous sovereign default with nominal rigidities. Increasing spending in a recession reduces unemployment, but it exposes the government to a debt crisis. We quantitatively analyze this trade-off between stimulus and austerity and find that expanding government spending may be undesirable, even in the presence of sizable Keynesian stabilization gains and inequality concerns. Consistent with these findings, we show that sovereign risk is a key driver of the fiscal procyclicality observed worldwide.