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A Comparison of Nominal and Real Historical Risk Measures

Published online by Cambridge University Press:  28 April 2015

Beth Pride Ford  and
Wesley N. Musser
Beth Pride Ford
Affiliation:
Department of Agricultural Economics and Rural Sociology, The Pennsylvania State University
Wesley N. Musser
Affiliation:
University of Maryland and former professor of Agricultural Economics, The Pennsylvania State University
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Abstract

Previous studies of historical risk have used either nominal or real data to calculate risk measures for agricultural prices and income. However, the effects of using nominal and real data have not been evaluated. This study utilizes theoretical variance approximation relationships to examine variances from detrended real and nominal time series. The relationships between variances are derived for quarterly U.S. farm milk prices for 1960-72, 1973-80, and 1981-90. Contrary to common intuitive arguments, results indicate that variances of real time series can be larger than variances of nominal series. While definitive conclusions are not possible, several reasons for using nominal data in risk analysis are given.

Keywords

detrendingindicesnominal datarisk measurement
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 27 , Issue 2 , December 1995 , pp. 669 - 685
Copyright
Copyright © Southern Agricultural Economics Association 1995

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