Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 2024, Volume 92, Issue 4

The U.S. Public Debt Valuation Puzzle

https://doi.org/10.3982/ECTA20497
p. 1309-1347

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, Mindy Z. Xiaolan

The government budget constraint ties the market value of government debt to the expected present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no‐arbitrage restriction in the United States. Both cyclical and long‐run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasuries may be overpriced.


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Supplemental Material

Supplement to "The U.S. Public Debt Valuation Puzzle"

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, and Mindy Z. Xiaolan

This supplement contains material not found within the manuscript.

Supplement to "The U.S. Public Debt Valuation Puzzle"

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, and Mindy Z. Xiaolan

The replication package for this paper is available at https://doi.org/10.5281/zenodo.11088633. The Journal checked the data and codes included in the package for their ability to reproduce the results in the paper and approved online appendices.