The present value model and Thailand's current account balance

Ahmad Zubaidi Baharumshah, Hamizun Ismail

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Purpose: The purpose of this paper is to determine whether current account imbalances - surpluses or deficits - are "excessive" and hence constitute a valid concern. The second objective is to assess the degree of capital mobility by comparing the variance of the current account derived from the intertemporal model with that of the actual current account. Design/methodology/approach: The paper addresses the issues by constructing the intertemporal model using annual data between 1960 and 2006. The authors applied the F-test, the Bartlett test and the Siegel-Tukey test to formally validate for equality of the variances of the optimal and actual consumption smoothing current accounts. Findings: Based on vector autoregressive model, it was found that the present value of future net output closely reflects the evolution of the current account series with a small (insignificant) deviation between the actual and the estimated consumption-smoothing current account. The results show that the hypothesis of full-consumption smoothing could not be rejected by the data for the full sample period, implying that the degree of capital mobility was quite high, even during the post-1997 period. The variance ratio of the actual current account to the optimal current account is not statistically greater than one. Therefore, it is concluded that there is no evidence to suggest inappropriate use of capital flows over the entire sample period under investigation. Originality/value: The authors relied on a more general framework, as suggested by Bergin and Sheffrin, which allows real interest rate to affect current account in order to provide a new perspective on Thailand's current account balance.

Original languageEnglish
Pages (from-to)337-355
Number of pages19
JournalJournal of Economic Studies
Volume39
Issue number3
DOIs
Publication statusPublished - Jul 2012

Fingerprint

Present value model
Thailand
Current account
Current account balance
Consumption smoothing
Capital mobility
Intertemporal models
Current account imbalances
Equality
Variance ratio
Surplus
Deviation
Capital flows
Vector autoregressive model
Design methodology
Present value

Keywords

  • Capital
  • Capital mobility
  • Consumption
  • Consumption smoothing
  • Current account
  • National economy
  • Thailand

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

The present value model and Thailand's current account balance. / Baharumshah, Ahmad Zubaidi; Ismail, Hamizun.

In: Journal of Economic Studies, Vol. 39, No. 3, 07.2012, p. 337-355.

Research output: Contribution to journalArticle

Baharumshah, Ahmad Zubaidi ; Ismail, Hamizun. / The present value model and Thailand's current account balance. In: Journal of Economic Studies. 2012 ; Vol. 39, No. 3. pp. 337-355.
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