Eric Barthalon
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231166287
- eISBN:
- 9780231538305
- Item type:
- chapter
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231166287.003.0008
- Subject:
- Economics and Finance, Behavioural Economics
This chapter extends the field of application of the theory of psychological time and memory decay to nominal interest rates by looking at their correlation with the perceived rate of nominal growth ...
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This chapter extends the field of application of the theory of psychological time and memory decay to nominal interest rates by looking at their correlation with the perceived rate of nominal growth in eighteen countries. It begins with an overview of the theory of the psychological rate of interest, paying special attention to the psychological symmetry between memory decay and future discounting. It then considers whether the psychological rate of interest computed from the sequence of quarterly nominal GDP growth rates is compatible with U.S. AAA corporate bond yields since 1951. It also presents empirical observations about nominal interest rates and the perceived rate of nominal growth and proceeds to discuss nominal interest rates at the end of the German hyperinflation as well as the application of the theory of the psychological rate of interest to the yield on British Consols during the nineteenth century. It concludes that Maurice Allais's theory of the psychological rate of interest is not compatible with a broader set of empirical data.Less
This chapter extends the field of application of the theory of psychological time and memory decay to nominal interest rates by looking at their correlation with the perceived rate of nominal growth in eighteen countries. It begins with an overview of the theory of the psychological rate of interest, paying special attention to the psychological symmetry between memory decay and future discounting. It then considers whether the psychological rate of interest computed from the sequence of quarterly nominal GDP growth rates is compatible with U.S. AAA corporate bond yields since 1951. It also presents empirical observations about nominal interest rates and the perceived rate of nominal growth and proceeds to discuss nominal interest rates at the end of the German hyperinflation as well as the application of the theory of the psychological rate of interest to the yield on British Consols during the nineteenth century. It concludes that Maurice Allais's theory of the psychological rate of interest is not compatible with a broader set of empirical data.
