The rapidly growing national debt in the U.S. since the 1970s has alarmed and intrigued the academic world. Consequently, the concept of dynamic (in)efficiency in an overlapping generations (OLG) world and the importance of the heterogeneous-agents and incomplete markets (HAIM) hypothesis to...

This paper analyzes bond convenience yields in a currency union. The intertemporal government budget constraint requires member countries' bond convenience yields and default spreads to adjust in response to shocks to their government surpluses. In the data, adjustments to convenience yields...

Governments face a trade-off between insuring bondholders and insuring taxpayers against output shocks. If they insure bondholders by manufacturing risk-free zero-beta debt, then they can only provide limited insurance to taxpayers. Taxpayers will pay more taxes in bad times regardless of...

Since 1980, foreign investors have timed their purchases and sales of U.S. Treasurys to yield particularly low returns. Their annual dollar-weighted returns, measured by IRRs, are around 3% lower than a buy-and-hold strategy over the same horizon. In comparison, the IRRs achieved by domestic...

Governments face a trade-off between insuring bondholders and taxpayers. If the government fully insures bondholders by manufacturing risk-free zero-beta debt, then it cannot also insure taxpayers against permanent macroeconomic shocks over long horizons. Instead, taxpayers will pay more in...