An Alternative Estimation Technique for Determining Discount Rates and Earnings Growth Rates in Wrongful Death and Personal Injury Cases

Paul Mason and Andres Gallo

Journal of Forensic Economics, 2016, vol. 26, issue 2, 181-192

Abstract: Regardless of the time period studied since the 1970s ended, without adjustments for structural factors, both real and nominal interest rates across the spectrum of maturities exhibit non-stationary processes with a unit root. Consequently, simply employing past means of either real or nominal yields losses a degree of credibility. Focusing on the period of the “Great Moderation,” employing structural break analysis can remove the non-stationarity so that forensic economists can chose not to use more complex ARIMA models, stochastic properties of interest rates, or estimating methods more complex than these. Rather, following the analysis in this paper, forensic economists can employ one of a small number of discount rates from a not too distant past time period that reflect systematic variations more likely to be consistent with predictable future interest rates.

JEL-codes: K13 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:fek:papers:doi:10.5085/jfe-397.1

DOI: 10.5085/JFE-397.1

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