The Feldstein-Horioka Test of International Capital Mobility: Is it Feasible?

Feldstein and Horioka (1980) argued that the correlation of saving and investment in a cross-section of countries may provide a test of global capital mobility. This paper argues that neither the long-run nor the short-run correlation can serve as a reliable basis for such a test. The intertemporal...

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Bibliographic Details
Main Author: Jansen, W. J. (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 1996
Series:IMF Working Papers Working Paper No. 96/100
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Summary:Feldstein and Horioka (1980) argued that the correlation of saving and investment in a cross-section of countries may provide a test of global capital mobility. This paper argues that neither the long-run nor the short-run correlation can serve as a reliable basis for such a test. The intertemporal budget constraint implies that each country's saving and investment should be cointegrated over time. Simulations show that the cross-section regressions used in the literature will produce correlations that strongly tend towards one, regardless of the degree of capital mobility. Although the short-run correlation is not affected by the intertemporal budget constraint, the empirical analysis shows it is primarily a country-specific business cycle fact
Physical Description:1 Online-Ressource (30 p)
ISBN:1451852355
9781451852356

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