Quantifying U.S. Treasury Investor Optimism

Zhengyang Jiang, Heanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan
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Zhengyang Jiang: Northwestern Kellogg
Heanno Lustig: Stanford GSB and NBER

Research Papers from Stanford University, Graduate School of Business

Abstract: When the government commits to a debt policy, the future value of government primary surpluses at all horizons is dictated by the debt dynamics under the risk-neutral measure. We compare the present discounted value of future surpluses implied by the U.S. federal government debt dynamics in a no-arbitrage bond pricing model to the PDV of actual government surpluses. Since the late 1990s, the debt-implied PDV of surpluses have consistently and persistently exceeded realized surpluses. They have also exceeded surplus forecasts resulting from tax and spending policy rules. U.S. Treasury investors appear to have been overly optimistic when assessing future surpluses.

JEL-codes: E6 G1 H6 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3931

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