|
EconStor >
ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/18739
|
| | |
| Title: | | The consumption-based determinants of the term structure of discount rates  |
| Authors: | | Gollier, Christian |
| Issue Date: | | 2005 |
| Series/Report no.: | | CESifo working papers 1375 |
| Abstract: | | The efficient rate of return of a zero-coupon bond with maturity t is determined by our expectations about the mean (+), variance (-) and skewness (+) of the growth of aggregate consumption between 0 and t. The shape of the yield curve is thus determined by how these moments vary with t. We first examine growth processes in which a higher past economic growth yields a first-degree dominant shift in the distribution of the future economic growth, as assumed for example by Vasicek (1977). We show that when the growth process exhibits such a positive serial correlation, then the yield curve is decreasing if the representative agent is prudent (u ' > 0), because of the increased risk that it yields for the distant future. A similar definition is proposed for the concept of second-degree stochastic correlation, as observed for example in the Cox-Ingersoll-Ross model, with the opposite comparative static property holding under temperance (u ' < 0), because the change in downside risk (or skweness) that it generates. Finally, using these theoretical results, we propose two arguments in favor of using a smaller rate to discount cash-flows with very large maturities, such as those associated to global warming or nuclear waste management. |
| Subjects: | | stochastic dominance yield curve far distant future cost-benefit analysis prudence temperance downside risk |
| JEL: | | Q51 G12 E43 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
|
| Files in This Item:
| |
|
| No. of Downloads:
| |
| last Month |
last 3 Month |
total |
|
|
|
|
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/18739
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|