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

Author/Editor:

Jacques A Miniane ; Benoît Mercereau

Publication Date:

June 1, 2004

Electronic Access:

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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.

Series:

Working Paper No. 04/106

Subject:

English

Publication Date:

June 1, 2004

ISBN/ISSN:

9781451852929/1018-5941

Stock No:

WPIEA1062004

Format:

Paper

Pages:

30

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