ESTIMATING SAVING-INVESTMENT CORRELATIONS - EVIDENCE FOR OECD COUNTRIES BASED ON AN ERROR-CORRECTION MODEL

Saving-investment correlations are important stylized facts in open ec onomy macroeconomics and indicators of capital mobility. They are best estimated by an Error Correction Model (ECM), because an ECM is consi stent with intertemporal general equilibrium models. The ECM is a synt hesis of previous approaches. Applying the ECM to the OECD countries, we find that in general saving and investment are cointegrated. The EC M is more powerful in detecting cointegration than the two-step Engle- Granger procedure. Estimates of the saving-investment correlation are robust with respect to over differencing We find evidence of a large c ountry effect and an increase in capital mobility within the OECD area . Copyright (C) 1996 Elsevier Science Ltd