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

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  • James M. Nason and John H. Rogers

Abstract

Testable implications of the basic intertemporal model of current account determination are almost always rejected by the data. We confirm these rejections for a sample of post-war Canadian data, then account for them by calibrating and simulating a small open economy, real business cycle model. Bayesian Monte Carlo experiments reveal that several of the "usual suspects", in particular the costs of risk premia and shocks to fiscal policy and the world real interest rate, are important sources of the rejections observed in the data, while other suspects are unimportant.

Suggested Citation

  • James M. Nason and John H. Rogers, 2001. "The Present Value Model of the Current Account Has Been Rejected: Round Up the Usual Subjects," Computing in Economics and Finance 2001 102, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:102
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    Keywords

    Current Account; Risk Premia; Capital Mobility; Fiscal Shock; World Real Interest Rate Shock.;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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