The Present-Value Model of the Current Account Has Been Rejected: Round Up the Usual Suspects

By J. Nason, J. Rogers. 2003

182 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8734a327f25f48a7ff8f8a63071d9a5130d518ac

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Asset Prices, Exchange Rates and the Current Account (2007, result): “…interest rates and exchange rates, but also the evidence using such models is rather weak, with several papers suggesting a rejection of the model (Nason and Rogers, 2006). on news shocks by Beaudry and Portier (2006), in which expectations about future productivity a¤ect current equity prices.”
A shadow rate New Keynesian model (2016, background): “…relationship between bond quantity and risk premium is also established in the international economic literature, see Uribe and Yue (2009) and Nason and Rogers (2006), for example, with the former motivating it by some cost associated with financial intermediaries who facilitate bond…”
Current account determinants and external sustainability in periods of structural change (2011, unknown): “On the one hand, several studies have tried to establish evidence in favour of the baseline model using different testing strategies (e.g. see Sheffrin and Woo, 1990; Bergin and Sheffrin, 2000; Nason and Rogers, 2006).”