Challenging the Empirical Evidence From Present Value Models of the Current Account

June 1, 2004

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Format: Chicago

Jacques A Miniane, and Benoît Mercereau. Challenging the Empirical Evidence From Present Value Models of the Current Account, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Under near-singularity conditions typically generated by persistence in current account data the predictions of present value models become extremely sensitive to small sample estimation error. Moreover, traditional Wald tests will distort the likelihood that the model is true. Using OECD data we find that: (i) the Wald test often leads to the wrong inference compared to a valid test; (ii) in all cases posterior distributions of the predicted series and associated correlation coefficients and variance ratios are very wide. In particular, one cannot draw any firm conclusion regarding excess current account volatility.

Subject: Balance of payments, Current account, Econometric analysis, National accounts, Personal income, Vector autoregression

Keywords: Correlation coefficient, Current account, Current account persistence, Current account series, Current account volatility, Model evaluation, Personal income, Predicted current account, Present value model, VAR companion matrix, VAR parameter estimate, Variance-covariance matrix, Vector autoregression, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/106
Stock No:

WPIEA1062004
ISBN:

9781451852929
ISSN:

1018-5941

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