Search Results

You are looking at 1 - 2 of 2 items for :

  • "equilibrium debt valuation equation" x
Clear All
Huixin Bi, Ms. Wenyi Shen, and Susan Yang Shu-Chun
This paper studies the main channels through which interest rate normalization has fiscal implications in the United States. While unexpected inflation reduces the real value of government liabilities, a rising policy rate increases government financing needs because of higher interest payments and lower real bond prices. After an initial decline, the real government debt burden rises even with higher tax revenues in an expansion. Given the current net debt-to-GDP ratio at around 80 percent, interest rate normalization leads to a negligible increase in the sovereign default risk of the U.S. federal government, despite a much higher federal debt-to-GDP ratio than the post-war historical average.
Huixin Bi, Ms. Wenyi Shen, and Susan Yang Shu-Chun

Distributions Fiscal limits are defined as the expected sum of the discounted maximum primary fiscal surplus over an infinite horizon. By iterating (9) forward, imposing the tranversality conditions for government debt, and assuming no default at t ( ∆ t = 0), we obtain the equilibrium debt valuation equation of government real debt liabilities at t . b t − 1 π t = ∑ i = 0 ∞ β t i E t [ λ t + i λ