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

Stavros Panageas

No 35260, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E60 G1 G12 H60 (search for similar items in EconPapers)
Date: 2026-05
Note: AP EFG PE
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