This paper reviews empirical evidence about the effects of changes in U.S. monetary policy and fiscal policy that has been accumulated during recent years in a series of collaborative research projects involving a variety of global macroeconometric models. The paper also considers, in particular, the consequences over the next five to six years for key U.S. and foreign economic variables of a significant U.S. fiscal contraction. The quantitative implications of both alternative fiscal spending and tax actions, and alternative treatments of expectations (adaptive versus rational) are analyzed. ; The results suggest that a phased-in fiscal contraction could reduce the level of output for up to several years, as well as the levels of interest rates, the dollar and the U.S. external deficit. The decline in the external deficit would be significantly smaller than the decline in the budget deficit, however. The negative effects on output would be mitigated to the extent that the phased-in contraction were anticipated (i.e., announced credibly in advance), to the extent that monetary policy were eased, or to the extent that the fiscal package emphasized spending cuts and personal taxes rather than corporate and excise taxes.