Challenging the Empirical Evidence From Present Value Models of the Current Account
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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.
Series:
Working Paper No. 2004/106
Subject:
Balance of payments Current account Econometric analysis National accounts Personal income Vector autoregression
English
Publication Date:
June 1, 2004
ISBN/ISSN:
9781451852929/1018-5941
Stock No:
WPIEA1062004
Pages:
30
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