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Journal Article
What Would It Cost to Issue 50-year Treasury Bonds?
The longest-term U.S. Treasury bonds that investors can buy mature in 30 years. Some other countries offer up to 50-year government bonds. Examining these foreign bond markets and extrapolating U.S. Treasury yields to evaluate such longer-term options suggests that the extra costs of introducing 50-year bonds relative to conventional 30-year bonds are likely to be small on average. Because the U.S. fiscal deficit remains substantial, such longer-term debt instruments could provide an attractive opportunity to finance the growing debt in a sustainable way.
Journal Article
U.S. Federal Debt Has Increased, but Appears Sustainable for Now
The unprecedented fiscal stimulus packages that Congress passed earlier this year provided timely assistance to households and businesses, but also led to a sharp increase in U.S. federal government debt. We find that the current net federal debt level of about 100 percent of GDP does not pose a threat to fiscal sustainability. Over a longer horizon, debt sustainability will depend, to a large extent, on whether the federal government can curb mandatory spending or raise taxes.
Which Households Are Most Exposed to the Inflation “Tax”?
The federal government benefits from unexpected bouts of inflation since the real value of its debt falls. However, this also hurts its debtholders.
Journal Article
The Long-Run Fiscal Outlook in the United States
The federal debt as a share of U.S. GDP is nearing its historical high from World War II. This ratio fell sharply over the three decades after World War II due to a primary surplus, rapid economic growth, and low interest rates. Projections for the coming three decades point to a persistent primary deficit without major reforms to mandatory spending programs or higher taxes. Thus, the rates of interest and economic growth will be crucial for determining the long-run debt-to-GDP ratio’s evolution.
Journal Article
Interview: Alan Auerbach
Alan Auerbach enrolled in college at Yale planning to focus on math and science. But in his second year, he figured he should sign up for a course in something else for the sake of the school's distribution requirements. So he tried introductory economics without having a clear idea of what economics was — and discovered he enjoyed it.
Working Paper
Revisiting the Interest Rate Effects of Federal Debt
This paper revisits the relationship between federal debt and interest rates. A common approach in the literature is to regress an expected interest rate on a projection of federal debt. We show that issues related to nonstationarity have become more pronounced over the last 20 years, raising significant concern about the reliability of estimates from this model. We argue that estimating the model in first differences rather than in levels addresses these concerns. Our preferred specification indicates that a 1 percentage point increase in the debt-to-GDP ratio raises the 5-year-ahead, 5-year ...