Habit formation and the present-value model of the current account: Yet another suspect
نویسنده
چکیده
JEL classification: F32 F41 E32 In a recent paper, Gruber (Gruber, J.W., 2004. A present value test of habits and the current account. Journal of Monetary Economics 51, 1495–1507) claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM is observationally equivalent to the PVM augmented with persistent transitory consumption, which is induced by world real interest rate shocks. Based on a small open-economy real business cycle (SOE-RBC) model endowed with consumption habits as well as persistent world real interest rate shocks, this paper resolves the inherent identification problem of the habit-forming PVM by Bayesian methods to seek effects of habit formation on current account fluctuations in typical small open economies, Canada and the United Kingdom. Results reveal no clear evidence that habit formation plays a crucial role in current account fluctuations. © 2009 Elsevier B.V. All rights reserved.
منابع مشابه
Habit Formation, the World Real Interest Rate, and the Present Value Model of the Current Account
A recent study reports that habit formation in consumption can improve the ability of the present value model of the current account (PVM) to forecast actual current account movements because habits make the current account more volatile. This paper, however, shows that the habit-forming PVM is observationally equivalent to the canonical PVM augmented with a transitory consumption shock: the sa...
متن کاملA Novel Integrated Approach to Modelling of Depletion-Induced Change in Full Permeability Tensor of Naturally Fractured Reservoirs
More than half of all hydrocarbon reservoirs are Naturally Fractured Reservoirs (NFRs), in which production forecasting is a complicated function of fluid flow in a fracture-matrix system. Modelling of fluid flow in NFRs is challenging due to formation heterogeneity and anisotropy. Stress sensitivity and depletion effect on already-complex reservoir permeability add to the sophistication. Horiz...
متن کاملThe Position of the Education Sector in the Iranian Economy with Emphasis on the National Education Account-1396
Abstract. Human capital is a prerequisite for sustainable development; since education has the most human capital, paying attention to it will not only ensure individual security but also ensure the security of society. Therefore, understanding the education sector in a wide range of dimensions has been considered by researchers and policy makers. The National Education Account is a framework f...
متن کاملValue of Travel Time :Theoretical and Empirical Method
The value of travel time savings (VTTS) is the monetary value attached to save a determined amount of travel time. VTTS is also the most important benefit category aimed at justifying investments in transport infrastructures by public administrations. Hence VTTS played a significant role in various economic studies, both analytical and empirical (Zamparini & Reggiani, 2007). "It is difficult to...
متن کاملCreep Life Forecasting of Weldment
One of the yet unresolved engineering problems is forecasting the creep lives of weldment in a pragmatic way with sufficient accuracy. There are number of obstacles to circumvent including: complex material behavior, lack of accurate knowledge about the creep material behavior specially about the heat affected zones (HAZ),accurate and multi-axial creep damage models, etc. In general, creep life...
متن کامل