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Fiscal Stimulus under Sovereign Risk

October 28, 2021

Kuala Lumpur Research Seminar Series

  • We study this question in a model of endogenous sovereign default with nominal rigidities. Increasing spending in a recession reduces unemployment, but 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 sizeable Keynesian stabilization gains and inequality concerns. Consistent with these findings, we show that sovereign risk is a key driver of the observed fiscal procyclicality in the data.

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  • Pablo Ottonello is an Assistant Professor at the Economics Department, University of Michigan. Ottonello’s main fields of expertise are macroeconomics, international macroeconomics, and monetary economics. His work has focused on studying the role of financial markets in the transmission of macroeconomic policies, sovereign debt markets, financial crises, and households’ heterogeneity. He has conducted academic and policy work studying Latin American economies.  He received a Ph.D. from Columbia University in 2015, a B.A. from Universidad de la Republica (Montevideo, Uruguay). 


  • WHEN (KUALA LUMPUR TIME): Thursday, October 28, 2021: 9:00 -10:00am
  • WHEN (ET/WASHINGTON, D.C. TIME): Wednesday, October 27, 2021: 9:00 – 10:00pm