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Savings-Investment Correlations: Transitory versus Permanent

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  • Sarno, Lucio
  • Taylor, Mark P

Abstract

In this paper, the authors investigate the difference between the short-run and the long-run savings-investment correlation coefficient, in order to shed light both on the validity of the Feldstein-Horioka regression as a means of measuring the degree of capital mobility and on its implications. Using quarterly U.K. data, they also examine the effectiveness of the abolition of exchange control which, in October 1979, ended a long period of restrictions on capital flows between the United Kingdom and the international economy. The authors find that, consistent with the logical implication of the Feldstein-Horioka regression, the short-run correlation is significantly higher than the long-run correlation. In contrast with much of the literature employing the Feldstein-Horioka interpretation, however, the results suggest that the United Kingdom is highly financially integrated with the global economy post 1979. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.

Volume (Year): 66 (1998)
Issue (Month): 0 (Supplement)
Pages: 17-38

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Handle: RePEc:bla:manch2:v:66:y:1998:i:0:p:17-38

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Cited by:
  1. Chakrabarti, Avik, 2006. "The saving-investment relationship revisited: New evidence from multivariate heterogeneous panel cointegration analyses," Journal of Comparative Economics, Elsevier, vol. 34(2), pages 402-419, June.
  2. Hoffmann, Mathias, 2004. "International capital mobility in the long run and the short run: can we still learn from saving-investment data?," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 113-131, February.
  3. Rustam Jamilov, 2013. "J-Curve Dynamics and the Marshall–Lerner Condition: Evidence from Azerbaijan," Transition Studies Review, Springer, vol. 19(3), pages 313-323, February.
  4. Chu, Kam Hon, 2012. "The Feldstein-Horioka Puzzle and Spurious Ratio Correlation," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 292-309.
  5. De Vita, Glauco & Abbott, Andrew, 2002. "Are saving and investment cointegrated? An ARDL bounds testing approach," Economics Letters, Elsevier, vol. 77(2), pages 293-299, October.
  6. Singh, Tarlok, 2008. "Testing the Saving-Investment correlations in India: An evidence from single-equation and system estimators," Economic Modelling, Elsevier, vol. 25(5), pages 1064-1079, September.
  7. Singh, Tarlok, 2010. "Does domestic saving cause economic growth? A time-series evidence from India," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 231-253, March.
  8. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.

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