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Article

v. 20 iss. 1 pp. 1-14
How Much Confidence Do We Have in Estimates of Future Net Discount Rates?
Journal of Forensic Economics (2007)

 

Developed an efficient net discount rate estimator based on optimally combining current and past rates. They also proposed a compromise estimator that equally weights the long term average and random walk estimators. In this paper we extend that analysis by developing analytic and bootstrap confidence intervals for the current, long-term average, optimal and compromise estimators. 50-percent boundaries vary by estimator and by forecast horizon. However, in almost all cases, the boundaries are within two percentage points of the point estimates. These boundaries generally narrow as the horizon increases. Additional results show that the boundaries have remained quite stable over time, regardless of the estimator. Combining these results with earlier findings, the best range of predictions for the future net discount rate may be an equal weighting of the current rate and the long-term average, plus or minus one or two percentage points.

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