Laplace, Hansen-Sargent and Beveridge-Nelson a note towards unified business application

Abstract

The paper derives the equivalence condition between the Beveridge-Nelson decomposition and the Hansen-Sargent prediction formula in continuous time using Laplace transforms. The results presented show how the Hansen-Sargent prediction formula is relevant not just for present value discounting but also for the trend-cycle decomposition of cash flow streams in corporate finance.

Keywords

• beveridge-nelson decomposition
• hansen-sargent prediction formula
• laplace transforms
• cash flows