Dear all,
I have probably a very basic question, but I got stuck a bit about it. Could you please explain me how we set the discount factor beta so as to match the long-term interest rate? So, for example, if I want to match the annual long term interest rate of 2.25% how should I calculate beta? (R = 1/beta in ss)
Thanks in advance!
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Discount factor and interest rate
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Discount factor and interest rate
by theta23 » Sun Jun 07, 2015 11:50 am
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Re: Discount factor and interest rate
by jpfeifer » Sun Jun 07, 2015 12:19 pm
If your model is annual,
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beta=1/R=1/(1+0.0025)
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