The Present Value Model and New Zealand’s Current Account

Anella Munro and Rishab Sethi

No DP2006/12, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: This paper tests the present value model of the current account on New Zealand data. There is some evidence in favour of the PVM – the current account tests as stationary and Granger-causes changes in national net income. However, the cross-equation restrictions implied by the model are rejected both individually and jointly. This result holds for both the linear and non-linear versions of the tests. The orthogonality test results are consistent with rejection due to the presence of a transitory demand shock. We conclude that a richer model is needed to understand current account dynamics.

JEL-codes: C51 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2006-12
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