The U.S. Public Debt Valuation Puzzle

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

No 26583, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The government budget constraint ties the market value of government debt to the expected risk-adjusted present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no-arbitrage restriction in the U.S. Both cyclical and long-run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasurys may be mispriced.

JEL-codes: E43 E62 G12 G15 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-fmk and nep-mac
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Citations: View citations in EconPapers (14)

Published as Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2024. "The U.S. Public Debt Valuation Puzzle," Econometrica, Econometric Society, vol. 92(4), pages 1309-1347, July.

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Working Paper: The U.S. Public Debt Valuation Puzzle (2021)
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