Search

The idea to learn about international capital mobility from saving and investment data remains appealing. Our approach is based on VAR methods and overcomes some of the problems associated with saving--investment regressions when the data are non-stationary. We propose a new measure of long-run capital mobility that can be easily calculated as a by-product of the estimation procedure of a cointegrated VAR. In an application to historical US and British data, we find long-run capital mobility to have been remarkably stable over the century whereas variations in the mobility of capital primarily seem to have affected short-run capital flows. Keywords: International capital mobility; Saving--investment correlation; Feldstein--Horioka puzzle; Intertemporal approach to the current account; Cointegration