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The Risk-free Rate and the Risk-adjusted Growth Rate

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  • Stavros Panageas

Abstract

Several important questions — such as the possibility of debt-rollover without primary surpluses — turn on whether the present value of the aggregate endowment is finite, i.e., whether the economic growth rate under the “risk-neutral” measure, lies below the risk-free rate. It is tempting to argue that the endowment must be finitely valued, since there exist finitely-valued, non-depreciating assets whose cash flows are cointegrated with aggregate output. This paper shows why this argument is incorrect. A remarkable historical episode in which French government bonds were indexed to aggregate growth allows direct measurement of the risk-adjusted growth rate, which is found to exceed the risk-free rate.

Suggested Citation

  • Stavros Panageas, 2026. "The Risk-free Rate and the Risk-adjusted Growth Rate," NBER Working Papers 35260, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35260
    Note: AP EFG PE
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    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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