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The Value of Government Debt

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  • John H. Cochrane

Abstract

The market value of government debt equals the present discounted value of primary surpluses. Applying present value decompositions from asset pricing to this valuation equation, I find that half of the variation in the market value of debt to GDP ratio corresponds to varying forecasts of future primary surpluses, and half to varying discount rates. Variation in expected growth rates is unimportant.

Suggested Citation

  • John H. Cochrane, 2019. "The Value of Government Debt," NBER Working Papers 26090, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26090
    Note: AP EFG PE
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    Cited by:

    1. Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2024. "The U.S. Public Debt Valuation Puzzle," Econometrica, Econometric Society, vol. 92(4), pages 1309-1347, July.
    2. John Cochrane, 2022. "The fiscal root of inflation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 22-40, July.
    3. Gersbach, Hans & Rochet, Jean Charles & von Thadden, Ernst-Ludwig, 2022. "Fiscal Policy and the Balance Sheet of the Private Sector," CEPR Discussion Papers 17529, C.E.P.R. Discussion Papers.
    4. Gersbach, Hans & Rochet, Jean-Charles & von Thadden, Ernst-Ludwig, 2023. "Public Debt and the Balance Sheet of the Private Sector," TSE Working Papers 23-1412, Toulouse School of Economics (TSE).
    5. Nicolas Caramp & Dejanir Silva, 2023. "Fiscal Policy and the Monetary Transmission Mechanism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 716-746, December.
    6. Akhmadieva, Veronika, 2022. "Fiscal adjustment in a panel of countries 1870–2016," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 555-568.
    7. Nicolas Caramp & Dejanir H. Silva, 2021. "Monetary Policy and Wealth Effects: The Role of Risk and Heterogeneity," Working Papers 341, University of California, Davis, Department of Economics.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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