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Declining discount rates: Economic justifications and implications for long-run policy
[‘Regime switches in interest rates’]

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Listed:
  • Christian Gollier
  • Phoebe Koundouri
  • Theologos Pantelidis

Abstract

Should economic policy target immediate problems like malaria and AIDS? Or should it target climate change, which may have even more dramatic life-threatening effects in the very long term? We discuss how the pattern of discount rates over the planning horizon bears on this important issue. A declining pattern of discount rates is theoretically justified by uncertainty about future economic conditions, and its shape and relevance can be estimated from historical data. We analyse empirically long-term interest rate data from nine countries, construct a weighted average representing a possible global discount rate pattern for a very long range of future dates, and assess its implications for the valuation of carbon mitigation policies.— Christian Gollier, Phoebe Koundouri and Theologos Pantelidis

Suggested Citation

  • Christian Gollier & Phoebe Koundouri & Theologos Pantelidis, 2008. "Declining discount rates: Economic justifications and implications for long-run policy [‘Regime switches in interest rates’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(56), pages 758-795.
    • Handle: RePEc:oup:ecpoli:v:23:y:2008:i:56:p:758-795.
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    File URL: http://hdl.handle.net/10.1111/j.1468-0327.2008.00211.x
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    References listed on IDEAS

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    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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