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The Present Value Model and New Zealand’s Current Account

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.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2006/dp06_12.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2006/12.

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Length: 24 p.
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:nzb:nzbdps:2006/12
Contact details of provider: Postal: P.O. Box 2498, Wellington
Phone: 64 4 471-3767
Fax: 64 4 471-2270
Web page: http://www.rbnz.govt.nz
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  1. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  2. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
  3. Nason, James M. & Rogers, John H., 2006. "The present-value model of the current account has been rejected: Round up the usual suspects," Journal of International Economics, Elsevier, vol. 68(1), pages 159-187, January.
  4. Kano, Takashi, 2008. "A structural VAR approach to the intertemporal model of the current account," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 757-779, September.
  5. Paul Bergin & Steven Sheffrin, . "Interest Rates, Exchange Rates And Present Value Models Of The Current Account," Department of Economics 97-22, California Davis - Department of Economics.
  6. Anella Munro & Rishab Sethi, 2007. "Understanding the New Zealand current account: A structural approach," Reserve Bank of New Zealand Discussion Paper Series DP2007/10, Reserve Bank of New Zealand.
  7. Kim, Kunhong & Hall, Viv B. & Buckle, Robert A., 2006. "Consumption-smoothing in a small, cyclically volatile open economy: Evidence from New Zealand," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1277-1295, December.
  8. Jacques Miniane & Benoît Mercereau, 2004. "Challenging the Empirical Evidence From Present Value Models of the Current Account," IMF Working Papers 04/106, International Monetary Fund.
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