Working Paper: NBER ID: w29351
Authors: Zhengyang Jiang; Hanno Lustig; Stijn van Nieuwerburgh; Mindy Z. Xiaolan
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.
Keywords: US Debt-Output Ratio; Fiscal Sustainability; Government Surpluses; Asset Pricing
JEL Codes: E62; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher debt-output ratios (G32) | lower real growth-adjusted returns on US government debt (E43) |
| higher debt-output ratios (G32) | higher surpluses (H62) |
| future debt-output ratios (H68) | current debt-output ratio (F34) |
| future surpluses or returns (H62) | current debt-output ratio (F34) |
| cash flows and discount rates (E43) | debt-output ratio (H63) |