TY  - JOUR
AU  - Chung,Hess
AU  - Leeper,Eric M.
TI  - What Has Financed Government Debt?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13425
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13425
L1  - http://www.nber.org/papers/w13425.pdf
N1  - Author contact info:
Hess Chung
Board of Governors of the Federal Reserve
E-Mail: Hess.T.Chung@frb.gov

Eric M. Leeper
Department of Economics
304 Wylie Hall
Indiana University
Bloomington, IN  47405
Tel: 812/855-9157
Fax: NA
E-Mail: eleeper@indiana.edu
AB  - 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.
ER  -