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

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Title

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

Creator

  • Author: Haslag, Joseph H.
    Creator Type: Personal
    Creator Info: University of Missouri
  • Author: Nieswiadomy, Michael L.
    Creator Type: Personal
    Creator Info: University of North Texas
  • Author: Slottje, Daniel J.
    Creator Type: Personal
    Creator Info: Southern Methodist University

Publisher

  • Name: American Risk and Insurance Association
    Place of Publication: [Malvern, Pennsylvania]

Date

  • Creation: 1991-09

Language

  • English

Description

  • Content Description: Article discussing research analyzing the relationship between real interest rates and real growth rates in wages.
  • Physical Description: 8 p.

Subject

  • Keyword: net discount ratios
  • Keyword: wages
  • Keyword: present value calculations

Source

  • Journal: Journal of Risk and Insurance, 1991, Malvern: American Risk and Insurance Association

Citation

  • Publication Title: Journal of Risk and Insurance
  • Volume: LVIII
  • Issue: 3
  • Page Start: 505
  • Page End: 512
  • Pages: 8
  • Peer Reviewed: True

Collection

  • Name: UNT Scholarly Works
    Code: UNTSW

Institution

  • Name: UNT College of Arts and Sciences
    Code: UNTCAS

Rights

  • Rights Access: public

Resource Type

  • Article

Format

  • Text

Identifier

  • Archival Resource Key: ark:/67531/metadc71790

Degree

  • Academic Department: Economics

Note

  • Display Note: Reprinted with permission from the Editor of the Journal of Risk and Insurance.
  • Display 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.