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Hyperbolic or exponential time discounting function? Empirical est using a conditional Consumption Capital Asset Pricing Model

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Date
2020
Alternative titles
Fonction d'acatualisation temporelle hyperbolique ou exponentielle? Un test empirique à partir d'un CCAPM conditionnel
Dewey
Taux d’intérêt
Sujet
discount rate; Subjective time preference rates; Consumption-based model; Interest term structure
JEL code
G.G1.G10; E.E4.E43
Journal issue
Finance
Publication date
2020
Publisher
Presses universitaires de Grenoble
Forthcoming
oui
URI
https://basepub.dauphine.fr/handle/123456789/21034
Collections
  • DRM : Publications
Metadata
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Author
De La Bruslerie, Hubert
1032 Dauphine Recherches en Management [DRM]
Coën, Alain
12240 University of Quebec at Montreal, Montreal, Quebec, Canada
Type
Article accepté pour publication ou publié
Abstract (EN)
The main objective in this article is to shed new light on the term structure of subjective time preference rates using a conditional Consumption Capital Asset Pricing Model. Following Samuelson’s (1937)’s suggestion, we analyze the concept of “time consistency”. More precisely, we challenge the relevance of the exponential time discounting function assumption, which leads to a constant subjective time preference rate. First, we develop a parsimonious, consumption-based model of the term structure of interest rates. Second, we test its implications for US monthly data from 1970:4 to 2013:1. We use a bivariate two-factor model of inflation and real consumption (through a VAR-GARCH process) to condition the term premiums of bonds. Our results clearly cast doubt on the assumption of a flat term structure, as implied by the standard exponential discounting function. A decreasing term structure of time preference rates is reported. It is particularly clear for the 1991-2013 period. Our results give strong support for the hyperbolic time discounting function hypothesis and open the way for the hypothesis of time varying time preference rates.

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