BIGFI/Finance Seminar with Pierre Collin-Dufresne, Swiss Finance Institute

On Friday, September 6, 2024, Pierre Collin-Dufresne, Swiss Finance Institute, will be giving a seminar on the paper: Admissible Surplus Dynamics and the Government Debt Puzzle

Friday, September 6, 2024 - 11:00 to 12:15

The Department of Finance and BIGFI are proud to announce the upcoming seminar with Pierre Collin-Dufresne, Swiss Finance Institute.

Pierre Collin-Dufresne will present: Admissible Surplus Dynamics and the Government Debt Puzzle

Abstract:
Is it possible to reconcile the procyclical Government surplus dynamics with the `safe asset status' of sovereign Debt? In an arbitrage-free market, if the aggregate debt value satisfies a transversality condition that rules out `bubbles', then it should equal the present value of future government surpluses. This relation seems to fail when the surplus process is calibrated to historical data in the US (Jiang, Lustig, van Nieuwerburgh, and Xiolan (2022). However, we show that when the government issues only safe bonds in an incomplete but arbitrage-free market, then not all surplus processes are admissible in the sense that they are consistent with both the dynamic budget constraint and a transversality condition. We propose a class of admissible surplus processes that matches empirical properties of US government spending and tax claims without generating a `debt valuation puzzle.'

Location:
Solbjerg Plads 3
2000 Frederiksberg
Room: SPs03

The page was last edited by: Department of Finance // 08/12/2024