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Resampling a time‐series process: A method of estimating the probabilities associated with alternative plans for protecting pensions against inflation
Author(s) -
Denton F. T.,
Spencer B. G.
Publication year - 1991
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950060307
Subject(s) - bootstrapping (finance) , inflation (cosmology) , series (stratigraphy) , econometrics , sample (material) , resampling , computer science , sequence (biology) , process (computing) , purchasing power , multivariate statistics , economics , statistics , mathematics , algorithm , macroeconomics , paleontology , chemistry , physics , genetics , chromatography , theoretical physics , biology , operating system
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.