Economics Working Paper 20107
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.
DOWNLOAD: The Value of Government Debt.pdf