Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/101521 
Year of Publication: 
1993
Series/Report no.: 
Diskussionsbeiträge - Serie II No. 205
Publisher: 
Universität Konstanz, Sonderforschungsbereich 178 - Internationalisierung der Wirtschaft, Konstanz
Abstract: 
We demonstrate that the correlation of saving and investment is measured best by an error correction model (ECM), because theory implies a cointegrating relation between these variables. The ECM comprises all previous specifications as special cases, which are shown to be potentially misspecified on theoretical grounds. We argue that the correlation can serve to reject the hypothesis of capital immobility, but not the one of capital mobility. Applying the ECM to Norway yields the following findings: First, the ECM outperforms prevailing specifications. Second, we detect structural breaks, which underpins the need for careful diagnostic testing and, third, the correlation's time profile is consistent with other indicators of capital mobility. The Feldstein-Horioka puzzle does not exist for Norway.
JEL: 
E2
E22
F21
F32
F41
Document Type: 
Working Paper

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