The present paper reassesses the role of monetary conservatism in a setting with nominal government debt and endogenous fiscal policy. We assume that macroeconomic policies are chosen by monetary and fiscal policy makers who interact repeatedly but cannot commit to future actions. The real level...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses scal 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...

This paper studies how sovereign risk – both fundamental and self-fulfilling – shapes the cyclical behavior of optimalfiscal policy. We develop a model with endogenous default costs where market sentiment can induce belief-driven debt rollover crises. Optimal taxes and public spending are...

We propose a model of firm expansion and contraction choices which integrates approaches from the industrial organization and corporate finance literature within one unified setting. Firms respond to shocks to their marginal costs by expanding or contracting output via internal or external...

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 provide a comprehensive analysis of how firms choose between different expansion and contraction forms, unifying existing approaches from the industrial organization and corporate finance literature. Using novel data covering almost the entire universe of UK firms, we document firms� use of...

This paper studies the effects of overreaction to recent news for macroeconomic outcomes in the context of a quantitative model of sovereign debt and default. Overreaction is formalized in terms of diagnostic expectations that excessively extrapolate from current conditions. Examining historical...

This paper demonstrates a negative relation between inflation and long-run productivity growth. Inflation generates long-run real effects due to a link from the short-run nominal and financial frictions to a firm's qualitative investment portfolio. We develop an endogenous growth model whose key...

The present paper reassesses the role of monetary conservatism in a setting with nominal government debt and endogenous fiscal policy. We assume that macroeconomic policies are chosen by monetary and fiscal policy makers who interact repeatedly but cannot commit to future actions. The real level...