Are Net Discount Ratios Stationary?: The Implications For Present Value Calculations

Description:

Article discussing research analyzing the relationship between real interest rates and real growth rates in wages.

Creator(s):
Creation Date: September 1991
Partner(s):
UNT College of Arts and Sciences
Collection(s):
UNT Scholarly Works
Usage:
Total Uses: 221
Past 30 days: 3
Yesterday: 1
Creator (Author):
Haslag, Joseph H.

University of Missouri

Creator (Author):
Nieswiadomy, Michael L.

University of North Texas

Creator (Author):
Slottje, Daniel J.

Southern Methodist University

Publisher Info:
Place of Publication: [Malvern, Pennsylvania]
Date(s):
  • Creation: September 1991
Description:

Article discussing research analyzing the relationship between real interest rates and real growth rates in wages.

Degree:
Department: Economics
Note:

Reprinted with permission from the Editor of the Journal of Risk and Insurance.

Note:

Abstract: This article analyzes the relationship between real interest rates and real growth rates in wages. The stationary of these time series has been discussed in the literature. However, since the net discount ratio, (1 + gτ)/(1 + rτ), is a nonlinear transformation, it is not necessarily stationary even if the interest rate and growth rate in wages series are each stationary. On the other hand, the net discount ratio may be stationary even if the interest rate and growth rate series are both non-stationary. The significant finding of this article is that this ratio is stationary. This conclusion appears robust since it holds for at least four different Treasury securities analyzed: three month, six month, one year, and three year. Therefore, a real net discount ratio, (1 + gτ)/(1 + rτ), can be used with confidence in constructing present value forecasts of expected earnings.

Physical Description:

8 p.

Language(s):
Subject(s):
Keyword(s): net discount ratios | wages | present value calculations
Source: Journal of Risk and Insurance, 1991, Malvern: American Risk and Insurance Association
Partner:
UNT College of Arts and Sciences
Collection:
UNT Scholarly Works
Identifier:
  • ARK: ark:/67531/metadc71790
Resource Type: Article
Format: Text
Rights:
Access: Public
Citation:
Publication Title: Journal of Risk and Insurance
Volume: LVIII
Issue: 3
Page Start: 505
Page End: 512
Pages: 8
Peer Reviewed: Yes