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Capital Mobility within EMU

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  • Stirböck, Claudia
  • Heinemann, Friedrich

Abstract

Capital mobility is helpful to cope with the loss of adjustment instruments in EMU. High capital mobility in the sense of Feldstein and Horioka (FH) can limit the negative consequences of shocks affecting the saving capacity of an economy in the Eurozone. It is the aim of this paper to assess the likely degree of capital mobility in the FH sense within EMU. For this purpose, the FH approach is extended and updated. In particular, the role of current account targeting, exchange rate volatility and tax differentials as potential obstacles to capital mobility is analyzed. The empirical findings support the view that both current account targeting and exchange rate volatility were relevant for limiting the free flow of capital in the past. The conclusion is that within EMU domestic saving and investment will be less correlated than they were before the advent of the Euro.

Suggested Citation

  • Stirböck, Claudia & Heinemann, Friedrich, 1999. "Capital Mobility within EMU," ZEW Discussion Papers 99-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:5236
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    File URL: https://www.econstor.eu/bitstream/10419/24305/1/dp1999.pdf
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    References listed on IDEAS

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    1. Jan Lemmen & Sylvester Eijffinger, 1995. "The quantity approach to financial integration: The Feldstein-Horioka criterion revisited," Open Economies Review, Springer, vol. 6(2), pages 145-165, April.
    2. John F. Helliwell & Ross McKitrick, 1999. "Comparing Capital Mobility Across Provincial and National Borders," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1164-1173, November.
    3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    4. Hogendorn, Christiaan, 1998. "Capital Mobility in Historical Perspective," Journal of Policy Modeling, Elsevier, vol. 20(2), pages 141-161, April.
    5. Sinn, Stefan, 1992. "Saving-Investment Correlations and Capital Mobility: On the Evidence from Annual Data," Economic Journal, Royal Economic Society, vol. 102(414), pages 1162-1170, September.
    6. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters,in: National Saving and Economic Performance, pages 201-226 National Bureau of Economic Research, Inc.
    7. Tamim Bayoumi, 1990. "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 360-387, June.
    8. James C. Ingram, 1959. "State and Regional Payments Mechanisms," The Quarterly Journal of Economics, Oxford University Press, vol. 73(4), pages 619-632.
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    Citations

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    Cited by:

    1. Buch, Claudia M., 2001. "Cross-Border Banking and Transmission Mechanisms: The Case of Europe," Kiel Working Papers 1063, Kiel Institute for the World Economy (IfW).
    2. Franz, Wolfgang, 1999. "Real and monetary challenges to wage policy in Germany at the turn of the millennium: technical progress, globalization and European Monetary Union," ZEW Discussion Papers 99-48, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Puhani, Patrick A., 1999. "Labour Mobility - An Adjustment Mechanism in Euroland?," IZA Discussion Papers 34, Institute for the Study of Labor (IZA).
    4. Müller, Claudia & Buscher, Herbert S., 1999. "The impact of monetary instruments on shock absorption in EU-Countries," ZEW Discussion Papers 99-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Heinemann, Friedrich & Schüler, Martin, 2002. "How integrated are the European retail financial markets? A cointegration analysis," ZEW Discussion Papers 02-22, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Patrick A. Puhani, 2001. "Labour Mobility: An Adjustment Mechanism in Euroland? Empirical Evidence for Western Germany, France and Italy," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 127-140, May.
    7. Lauer, Charlotte, 1999. "The Effects of European Economic and Monetary Union on Wage Behaviour," IZA Discussion Papers 36, Institute for the Study of Labor (IZA).
    8. Buscher, Herbert S., 1999. "Business Cycles in EU Member States," ZEW Discussion Papers 99-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Buscher, Herbert & Mueller, Claudia, 1999. "Exchange Rate Volatility Effects on the German Labour Market: A Survey of Recent Results and Extensions," IZA Discussion Papers 37, Institute for the Study of Labor (IZA).
    10. Heinemann, Friedrich, 1999. "Does globalization restrict budgetary autonomy? A multidimensional approach," ZEW Discussion Papers 99-29, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

    More about this item

    Keywords

    Capital Mobility; European Monetary Union; Investment-Saving-Relation;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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