We develop a class of dynamic stochastic general equilibrium models with nominal rigidities
and we introduce default risk in the model. We find that if productivity changes are observed,
policy authorities should be aware of default risk, although being aware of such risk is not
very important following government expenditure changes. Welfare gains from awareness of
default risk are nonnegligible if productivity changes, although welfare gains from awareness
of default risk are tiny following government expenditure changes
