What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn't Bark

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan

No 29351, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Higher U.S. government debt/output ratios do not forecast higher future surpluses or lower real returns on Treasurys. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. The market valuation of Treasurys is surprisingly insensitive to the macro fundamentals. Instead, the future debt/output ratio accounts for most of the variation. Systematic surplus forecast errors may help to account for these findings. Since the start of the GFC, surplus projections have anticipated a large fiscal correction that failed to materialize.

JEL-codes: E62 G12 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-mac
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