The present-value model of the current account has been rejected: round up the usual suspects

James Nason () and John H. Rogers ()

No 760, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the "usual suspects" of non-separable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. We confirm these rejections on post-war Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a "canonical" RBC model moves closest to the data when it features exogenous world real interest rate shocks.

Keywords: Balance of payments; International finance; Econometric models (search for similar items in EconPapers)
Date: 2003
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Related works:
Working Paper: The present-value model of the current account has been rejected: Round up the usual suspects (2003)
Working Paper: The Present Value Model of the Current Account Has Been Rejected: Round Up the Usual Subjects (2001)
Journal Article: The present-value model of the current account has been rejected: Round up the usual suspects (2006)
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