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

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  • 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. Antje Berndt & Hanno Lustig & Şevin Yeltekin, 2012. "How Does the US Government Finance Fiscal Shocks?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 69-104, January.
  2. Hanno Lustig & Christopher Sleet & Sevin Yeltekin, . "Fiscal Hedging with Nominal Assets," GSIA Working Papers 2006-E35, Carnegie Mellon University, Tepper School of Business.
  3. Bohn, Henning, 1992. "Budget deficits and government accounting," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37(1), pages 1-83, December.
  4. 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.
  5. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2006. "The U.S. Treasury yield curve: 1961 to the present," Finance and Economics Discussion Series 2006-28, Board of Governors of the Federal Reserve System (U.S.).
  6. Seater, John J., 1981. "The market value of outstanding government debt, 1919-1975," Journal of Monetary Economics, Elsevier, vol. 8(1), pages 85-101.
  7. 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.
  8. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. 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.
  10. 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.
  11. 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.
  12. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," Working Paper 97-10, Federal Reserve Bank of Atlanta.
  13. 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.).
  14. 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.
  15. Aizenman, Joshua & Marion, Nancy, 2011. "Using inflation to erode the US public debt," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 524-541.
  16. Boskin, Michael J, 1982. "Federal Government Deficits: Some Myths and Realities," American Economic Review, American Economic Association, vol. 72(2), pages 296-303, May.
  17. W. Michael Cox, 1985. "The behavior of Treasury securities; monthly, 1942-1984," Working Papers 8501, Federal Reserve Bank of Dallas.
  18. Butkiewicz, James L., 1983. "The market value of outstanding government debt : Comment," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 373-379.
  19. Michael Cox, W., 1985. "The behavior of treasury securities monthly, 1942-1984," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 227-250, September.
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Citations

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Cited by:
  1. Leonardo Melosi & Francesco Bianchi, 2012. "Dormant Shocks and Fiscal Virtue," 2012 Meeting Papers 44, Society for Economic Dynamics.
  2. 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.
  3. 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.
  4. Fuad Hasanov & Reda Cherif, 2012. "Public Debt Dynamics," IMF Working Papers 12/230, International Monetary Fund.
  5. Eric M. Leeper & Todd B. Walker, 2012. "Perceptions and Misperceptions of Fiscal Inflation," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 255-299 National Bureau of Economic Research, Inc.
  6. Nils Gornemann & Keith Kuester & Makoto Nakajima, 2012. "Monetary policy with heterogeneous agents," Working Papers 12-21, Federal Reserve Bank of Philadelphia.
  7. 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.
  8. Reda, Cherif & Fuad, Hasanov, 2010. "Public Debt Dynamics and Debt Feedback," MPRA Paper 27918, University Library of Munich, Germany.
  9. Sutherland, Douglas, 2012. "Fiscal Consolidation Needs and Implications for Growth," MPRA Paper 38745, University Library of Munich, Germany.
  10. Krause, Michael U. & Moyen, Stéphane, 2013. "Public debt and changing inflation targets," Discussion Papers 06/2013, Deutsche Bundesbank, Research Centre.
  11. Polito, Vito & Wickens, Mike, 2012. "A model-based indicator of the fiscal stance," European Economic Review, Elsevier, vol. 56(3), pages 526-551.
  12. 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.
  13. Bernardin Akitoby & Takuji Komatsuzaki & Ariel J Binder, 2014. "Inflation and Public Debt Reversals in the G7 Countries," IMF Working Papers 14/96, International Monetary Fund.
  14. Bianconi, Marcelo & Fisher, Walter H., 2011. "Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies," Economics Series 271, Institute for Advanced Studies.

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