01896cas a2200277 a 4500 AALejournalIMF011653 230101c9999 xx r poo 0 0eng d 5.00 USD 9781463933180 1018-5941 BD-DhAAL BD-DhAAL Kuester, Keith. Sovereign Risk, Fiscal Policy, and Macroeconomic Stability / Keith Kuester, Gernot Mueller, Giancarlo Corsetti, Andre Meier. Washington, D.C. : International Monetary Fund, 2012. 1 online resource (56 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper analyzes the impact of strained government finances on macroeconomic stability and the transmission of fiscal policy. Using a variant of the model by Curdia and Woodford (2009), we study a "sovereign risk channel" through which sovereign default risk raises funding costs in the private sector. If monetary policy is constrained, the sovereign risk channel exacerbates indeterminacy problems: private-sector beliefs of a weakening economy may become self-fulfilling. In addition, sovereign risk amplifies the effects of negative cyclical shocks. Under those conditions, fiscal retrenchment can help curtail the risk of macroeconomic instability and, in extreme cases, even stimulate economic activity. Mode of access: Internet Corsetti, Giancarlo. Meier, Andre. Mueller, Gernot. IMF Working Papers; Working Paper ; No. 2012/033 Full text available on IMF http://elibrary.imf.org/view/journals/001/2012/033/001.2012.issue-033-en.xml IMF e-Library