Comment

Abstract

The response of macroeconomic and financial variables to fiscal policy cannot be derived unconditionally. As Eric Leeper (2010) clearly states, a question like “what is the fiscal multiplier” cannot be scientifically answered if themeasurement is not conditioned on the full path of future fiscal variables. Laubach’s paper recognizes the point and makes an important contribution to the debate on the impact of fiscal policy on the term structure by explicitly arguing that two models are needed to solve the relevant measurement problem: a model for situations when default risk is not an issue and a model for situations when default risk becomes an issue. In this discussion I shall concentrate on the specification of the two differentmodelswithout commenting on the results of the estimation.