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

51 Pages Posted: 20 Sep 2021 Last revised: 2 Aug 2022

See all articles by Zhengyang Jiang

Zhengyang Jiang

Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2021

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: fiscal policy, bond pricing.

JEL Classification: G12, E62

Suggested Citation

Jiang, Zhengyang and Lustig, Hanno N. and Van Nieuwerburgh, Stijn and Xiaolan, Mindy Z., What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn't Bark (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3924900 or http://dx.doi.org/10.2139/ssrn.3924900

Zhengyang Jiang

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://sites.google.com/site/jayzedwye/

National Bureau of Economic Research (NBER) ( email )

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Hanno N. Lustig (Contact Author)

Stanford Graduate School of Business ( email )

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Stijn Van Nieuwerburgh

Columbia University Graduate School of Business ( email )

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Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

HOME PAGE: http://sites.google.com/view/mindyxiaolan

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