Habit formation and the present-value model of the current account: Yet another suspect

• 成果类型: Article
• 署名作者: Kano, Takashi
• 署名单位: University of Tokyo
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2009.02.003
• 发表日期: 2009
• 页码: 72-85
• 关键词: current account; habit formation; World real interest rate; Present-value model; Small open economy model; Bayesian analysis

摘要

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 (SCE-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. (C) 2009 Elsevier B.V. All rights reserved.