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Interest rate risk and other determinants of post WWII U.S. government debt/GDP dynamics

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Author Info

  • George J. Hall

    ()
    (Department of Economics, Brandeis University)

  • Thomas J. Sargent

    (Department of Economics, New York University)

Abstract

This paper uses a sequence of government budget constraints to motivate estimates of returns on the U.S. Federal government debt. Our estimates differ conceptually and quantitatively from the interest payments reported by the U.S. government. We use our estimates to account for contributions to the evolution of the debt-GDP ratio made by inflation, growth, and nominal returns paid on debts of different maturities.

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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP01.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 01.

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Length: 38 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:brd:wpaper:01

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Postal: MS032, P.O. Box 9110, Waltham, MA 02454-9110
Web page: http://www.brandeis.edu/departments/economics/
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Related research

Keywords: Holding period returns; capital gains; inflation; growth; debt- GDP ratio; government budget constraint;

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References

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  1. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  2. Seater, John J., 1981. "The market value of outstanding government debt, 1919-1975," Journal of Monetary Economics, Elsevier, vol. 8(1), pages 85-101.
  3. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  4. Monika Piazzesi & Martin Schneider, 2007. "Equilibrium Yield Curves," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 389-472 National Bureau of Economic Research, Inc.
  5. George J. Hall & Thomas J. Sargent, 1997. "Accounting for the federal government's cost of funds," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jul, pages 18-28.
  6. Cox, W. Michael & Hirschhorn, Eric, 1983. "The market value of U.S. government debt; Monthly, 1942-1980," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 261-272.
  7. Joshua Aizenman & Nancy Marion, 2009. "Using Inflation to Erode the U.S. Public Debt," NBER Working Papers 15562, National Bureau of Economic Research, Inc.
  8. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  9. Antje Berndt & Hanno Lustig & Sevin Yeltekin, . "How does the U.S. government finance fiscal shocks?," GSIA Working Papers 2006-E70, Carnegie Mellon University, Tepper School of Business.
  10. Bohn, H., 1991. "Budget Deficits and Government Accounting," Weiss Center Working Papers 28-91, Wharton School - Weiss Center for International Financial Research.
  11. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," Working Paper 97-10, Federal Reserve Bank of Atlanta.
  12. Michael Cox, W., 1985. "The behavior of treasury securities monthly, 1942-1984," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 227-250, September.
  13. Butkiewicz, James L., 1983. "The market value of outstanding government debt : Comment," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 373-379.
  14. Boskin, Michael J, 1982. "Federal Government Deficits: Some Myths and Realities," American Economic Review, American Economic Association, vol. 72(2), pages 296-303, May.
  15. Hanno Lustig & Christopher Sleet & Sevin Yeltekin, . "Fiscal Hedging with Nominal Assets," GSIA Working Papers 2006-E35, Carnegie Mellon University, Tepper School of Business.
  16. Gurkaynak, Refet S. & Sack, Brian & Wright, Jonathan H., 2007. "The U.S. Treasury yield curve: 1961 to the present," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2291-2304, November.
  17. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-57, December.
  18. W. Michael Cox, 1985. "The behavior of Treasury securities; monthly, 1942-1984," Working Papers 8501, Federal Reserve Bank of Dallas.
  19. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2008. "The TIPS yield curve and inflation compensation," Finance and Economics Discussion Series 2008-05, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Francesco Bianchi & Leonardo Melosi, 2013. "Dormant Shocks and Fiscal Virtue," Working Papers 13-12, Duke University, Department of Economics.
  2. Polito, Vito & Wickens, Mike, 2012. "A model-based indicator of the fiscal stance," European Economic Review, Elsevier, vol. 56(3), pages 526-551.
  3. Nils Gornemann & Keith Kuester & Makoto Nakajima, 2012. "Monetary policy with heterogeneous agents," Working Papers 12-21, Federal Reserve Bank of Philadelphia.
  4. Aizenman, Joshua & Marion, Nancy, 2009. "Using Inflation to Erode the U.S. Public Debt," Santa Cruz Department of Economics, Working Paper Series qt6xf174rs, Department of Economics, UC Santa Cruz.
  5. Bianconi, Marcelo & Fisher, Walter H., 2011. "Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies," Economics Series 271, Institute for Advanced Studies.
  6. Krause, Michael U. & Moyen, Stéphane, 2013. "Public debt and changing inflation targets," Discussion Papers 06/2013, Deutsche Bundesbank, Research Centre.
  7. Sutherland, Douglas, 2012. "Fiscal Consolidation Needs and Implications for Growth," MPRA Paper 38745, University Library of Munich, Germany.
  8. Reda, Cherif & Fuad, Hasanov, 2010. "Public Debt Dynamics and Debt Feedback," MPRA Paper 27918, University Library of Munich, Germany.
  9. Alessandro Missale, 2012. "Sovereign debt management and fiscal vulnerabilities," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 157-176 Bank for International Settlements.
  10. Eric M. Leeper & Todd B. Walker, 2011. "Perceptions and misperceptions of fiscal inflation," BIS Working Papers 364, Bank for International Settlements.
  11. Hideki Konishi & Kozo Ueda, 2013. "Aging and Deflation from a Fiscal Perspective," IMES Discussion Paper Series 13-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  12. Joshua Mason and Arjun Jayadev, . "Fisher Dynamics in Household Debt: The Case of the U.S. 1929-2011," Working Papers 13, University of Massachusetts Boston, Economics Department.
  13. Fuad Hasanov & Reda Cherif, 2012. "Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks," IMF Working Papers 12/230, International Monetary Fund.

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