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Interpreting Saving-Investment Correlations

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  • W. Jansen

Abstract

Feldstein and Horioka (1980) argued that the cross-sectional correlation of saving and investment provides a test of global capital mobility. We argue that the long-run correlation is determined by the intertemporal budget constraint, limited capital mobility and current account targeting. The short-run correlation reflects limited capital mobility and adjustment to supply and demand shocks. Our empirical analysis shows that the short-run correlation varies across countries and not over time, which suggests that it is a country-specific business cycle fact. The long-run correlation has substantially decreased over time, which suggests that limited capital mobility is partly responsible for its high value in the past. Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • W. Jansen, 1998. "Interpreting Saving-Investment Correlations," Open Economies Review, Springer, vol. 9(3), pages 207-219, July.
    • Handle: RePEc:kap:openec:v:9:y:1998:i:3:p:207-219
    DOI: 10.1023/A:1008264300142
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    References listed on IDEAS

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