Econometric Analysis of Present Value Models When the Discount Factor Is near One
This paper develops asymptotic econometric theory to help understand data generated by a present value model with a discount factor near one. A leading application is to exchange rate models. A key assumption of the asymptotic theory is that the discount factor approaches 1 as the sample size grows. The finite sample approximation implied by the asymptotic theory is quantitatively congruent with modest departures from random walk behavior with imprecise estimation of a well-studied regression relating spot and forward exchange rates.
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Document Object Identifier (DOI): 10.3386/w18247
Published: West, Kenneth D., 2012. "Econometric analysis of present value models when the discount factor is near one," Journal of Econometrics, Elsevier, vol. 171(1), pages 86-97.
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