A Response to "Unpleasant Asset Pricing Arithmetic" — Brian Romanchuk

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan have a working paper "What Determines the Government’s Funding Costs when r=g?: Unpleasant Fiscal Asset Pricing Arithmetic." They argue that the "fiscal cost" of deficits is not expected to be driven by the gap between the "risk free rate" and GDP growth (the famous r-g equation). Their target is something or other Olivier Blanchard wrote. In a completely non-surprising development, I am not happy with their logic….

Bond Economics
A Response to "Unpleasant Asset Pricing Arithmetic"

Brian Romanchuk