Proceedings of the 2nd Economics & Finance Conference, Vienna

DESIGNING A NEW DERIVATION OF THE SUBJECTIVE DISCOUNT RATE AND ITS APPLICATION IN THE CZECH REPUBLIC

JIRI ROTSCHEDL

Abstract:

The paper deals with the derivation of the subjective discount rate and for this purpose; it introduces a new subjective discount index: Current Discount Index (CDI). The author assumes a very close relationship with the commonly known subjective discount rate (ρ). CDI is derived indirectly from the ratio of loans to deposits of households. New index is considered the aggregate variable of the subjective discount rate (ρ), of the elasticity of intertemporal substitution (1/θ) and also other unspecified psychological factors (ξ). The values of CDI in the Czech Republic suggest reasons why there was a long-term decline in household consumption during the years 2012 and 2013.

Keywords: Subjective discount rate, subjective discount factor, consumption of households, intertemporal choice, current discount index

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