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Quantifying U.S. Treasury Investor Optimism

Author

Listed:
  • Jiang, Zhengyang

    (Northwestern Kellogg)

  • Lustig, Heanno

    (Stanford GSB and NBER)

  • Van Nieuwerburgh, Stijn

    (Columbia Business School and NBER)

  • Xiaolan, Mindy Z.

    (UT Austin McCombs)

Abstract

When the government commits to a debt policy, the future value of government primary surpluses at all horizons is dictated by the debt dynamics under the risk-neutral measure. We compare the present discounted value of future surpluses implied by the U.S. federal government debt dynamics in a no-arbitrage bond pricing model to the PDV of actual government surpluses. Since the late 1990s, the debt-implied PDV of surpluses have consistently and persistently exceeded realized surpluses. They have also exceeded surplus forecasts resulting from tax and spending policy rules. U.S. Treasury investors appear to have been overly optimistic when assessing future surpluses.

Suggested Citation

  • Jiang, Zhengyang & Lustig, Heanno & Van Nieuwerburgh, Stijn & Xiaolan, Mindy Z., 2021. "Quantifying U.S. Treasury Investor Optimism," Research Papers 3931, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3931
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/quantifying-us-treasury-investor-optimism
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    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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