We calibrate an artificial monetary economy, similar to the one proposed by Chari, Kehoe and McGrattan (2000), to the post-Real Plan Brazilian economy. We use simulations to evaluate the effects of price rigidity over the business cycles. Economies with little rigidities perform better than...

By preemptive austerity, we mean a policy that increases taxes to deter potential rollover crises. The policy is so successful that the usual danger signal of a rollover crisis, a high yield on new bonds sold, does not show up because the policy eliminates the danger. Mechanically, high taxes...