Resampling a Time-Series Process: A Method of Estimating the Probabilities Associated with Alternative Plans for Protecting Pensions against Inflation

Frank Denton and Byron Spencer

Journal of Applied Econometrics, 1991, vol. 6, issue 3, 303-14

Abstract: Any pension protection formula that falls short of complete compensation for inflation has associated with it a time-series of probability distributions of future purchasing power losses. A method of estimating those distributions is proposed and applied. The method is based on the idea of representing inflation as a multivariate time-series process and using a model fitted to historical data to generate a large artificial sample of "realized" inflation sequences by means of a bootstrapping procedure. The purchasing power losses under a given protection plan can then be simulated for each inflation sequence and the sample distributions calculated. Copyright 1991 by John Wiley & Sons, Ltd.

Date: 1991
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