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The quantity approach to financial integration: The Feldstein-Horioka criterion revisited

Listed author(s):
  • Jan Lemmen
  • Sylvester Eijffinger

This paper applies the Feldstein-Horioka criterion, that is, the role of savings-investment correlations, to assess the degree of financial integration in the European Community. We establish a link between the Feldstein-Horioka criterion and three other criteria for financial integration: the covered, uncovered, and real interest parity condition. Subsequently, we evaluate the Feldstein-Horioka criterion for financial integration on the basis of its underlying assumptions. The paper performs both cross-section and time-series analyses of savings-investment correlations. The time-series analysis relies on the concept of cointegration. Our major finding is that the Feldstein-Horioka criterion—contrary to what is usually found in world financial markets—is able to explain an increasing degree of financial integration in the European Community. Copyright Kluwer Academic Publishers 1995

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File URL: http://hdl.handle.net/10.1007/BF01001234
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 6 (1995)
Issue (Month): 2 (April)
Pages: 145-165

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Handle: RePEc:kap:openec:v:6:y:1995:i:2:p:145-165
DOI: 10.1007/BF01001234
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/international+economics/journal/11079/PS2

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