@techreport{Gollier2005consumption,
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.},
address = {Munich},
author = {Christian Gollier},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {Q51; G12; E43; 330; stochastic dominance; yield curve; far distant future; cost-benefit analysis; prudence; temperance; downside risk; Zinsstruktur; Zeitpr\"{a}ferenz; Abzinsung; Kosten-Nutzen-Analyse; Theorie},
language = {eng},
number = {1375},
publisher = {Center for Economic Studies and Ifo Institute (CESifo)},
title = {The consumption-based determinants of the term structure of discount rates},
type = {CESifo Working Paper},
url = {http://hdl.handle.net/10419/18739},
year = {2005}
}