What Has Financed Government Debt? / Hess Chung, Eric M. Leeper.

Format:

Book

Author/Creator:

Chung, Hess.

Contributor:

National Bureau of Economic Research.

Leeper, Eric M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13425.

NBER working paper series no. w13425

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

Dynamic rational expectations models imply that the real value of debt in the hands of the public must be equal to the expected present-value of surpluses. We impose this equilibrium condition on an identified VAR and characterize the way in which the present-value support of debt varies across various types of fiscal policy shocks and between fiscal and non-fiscal shocks. The role of expected primary surpluses in supporting innovations to debt depends on the nature of the shock. For some fiscal policy shocks, debt is supported almost entirely by changes in the present-value of surpluses, however, in the case of other fiscal policy shocks, surpluses fail to adjust and instead leave a large role for expected changes in discount rates. Horizons over which debt innovations are financed are long - on the order of fifty years - while present-values calculated up to any finite horizon up to then fluctuate wildly, particularly following government spending and transfer shocks.

Notes:

Print version record

September 2007.