Economics: The Open-Access, Open Assessment E-Journal http://www.economics-ejournal.org en Benoît Mercereau Jacques Miniane Should We Trust the Empirical Evidence from Present Value Models of the Current Account? 2008-04-03 The present value model of the current account has been very popular, as it provides an optimal benchmark to which actual current account series have often been compared. We show why persistence in observed current account data makes the estimated optimal series very sensitive to small-sample estimation error, making it close to impossible to determine whether the paths of the two series truly bear any relation to each other. Moreover, the standard Wald test of the model will falsely accept or reject the model with substantial probability. Monte Carlo simulations and estimations using annual and quarterly data from five OECD countries strongly support our predictions. In particular, we conclude that two important consensus results in the literature – that the optimal series is highly correlated with the actual series, but substantially less volatile – are not statistically robust. Paper submitted to the special issue " Using Econometrics for Assessing Economic Models " edited by Katarina Juselius. Datasets - Monte-Carlo simulations (Matlab codes): Belgium , Canada , Denmark , Sweden , United Kingdom - Datafiles (in Excel): annual , quarterly - CreateTable (in SAS) - Ftest (in SAS) - Estimation 3lags (in SAS) http://www.economics-ejournal.org/economics/discussionpapers/2008-10 JEL C11 JEL C52 JEL F32 JEL F41