Theory-Based Measurement of the Saving-Investment Correlation with an Application to Norway
The work of Martin Feldstein and Charles Horioka (1980) has stimulated much research on the correlations of national savings and investment rates and their relation to the degree of international capital mobility. Theory implies a cointegrating relation between these variables, which suggests this correlation is measured best by an error-correction model. This model includes all previous specifications as special cases, which the authors show are potentially misspecified on theoretical grounds. Applied to Norway, their model outperforms prevailing specifications. The authors detect structural breaks and find that the correlation's time profile is consistent with other indicators of capital mobility. Copyright 1996 by Oxford University Press.
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- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-329, June.
- Frederic S. Mishkin, 1988. "Understanding Real Interest Rates," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(5), pages 1064-1072.
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