TY - JOUR
AU - West, Kenneth D
TI - Econometric Analysis of Present Value Models When the Discount Factor Is near One
JF - National Bureau of Economic Research Working Paper Series
VL - No. 18247
PY - 2012
Y2 - July 2012
DO - 10.3386/w18247
UR - http://www.nber.org/papers/w18247
L1 - http://www.nber.org/papers/w18247.pdf
N1 - Author contact info:
Kenneth D. West
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-0033
Fax: 608/262-2033
E-Mail: kdwest@wisc.edu
AB - 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.
ER -