International Capital Market Integration - Handout | ECON 050, Study notes of International Economic Relations

Download International Capital Market Integration - Handout | ECON 050 and more Study notes International Economic Relations in PDF only on Docsity! Department of Economics Professor Mart́ın Uribe University of Pennsylvania Grader: Lei Hua Economics 050 International Economics Fall 2002 Handout 3 November 6, 2002 International Capital Market Integration 0.1 The Feldstein and Horioka correlation ——FIGURE ——————- Feldstein and Horioka estimated the following equation: Figure 1: Saving and Investment Rates for 16 Industrial Countries, 1960-1974 Averages 0.15 0.2 0.25 0.3 0.35 0.4 0.15 0.2 0.25 0.3 0.35 0.4 AUS A CAN DEN FIN FRA GER GRE IRE ITA JAP LUX NET NEW NOR SPA SWE SWI U.K USA BEL S/GDP I/G D P 0.035 + 0.887 (S/GDP)→ Source: M. Feldstein and C. Horioka, “Domestic Saving and International Capital Flows,” Economic Journal 90, June 1980, 314-29. ( I Y ) i = 0.035 + 0.887 ( S Y ) i + νi; R2 = 0.91 where (I/Y )i and (S/Y )i are, respectively, the average investment-to-GDP and savings-to-GDP ratios in country i over the period 1960-74. 1 Figure 2: U.S. National Saving, Investment, and the Current Account as a Fraction of GNP, 1960- 1998 1960 1970 1980 1990 2000 15 20 25 P er ce nt ___ S/Y .... I/Y Source: Department of Commerce, Bureau of Economic Analysis, www.bea.doc.gov. 0.2 Interest Rate Differentials Table 1: Real interest rate differentials for selected countries September 1982-January 1988 r − r∗ Mean Std. Dev. Germany -1.29 .65 Switzerland -2.72 .81 Mexico -20.28 9.43 France -0.48 .72 Note: The real interest rate differential (r − r∗) is measured by the local minus the Eurodollar 3-month interest rate (interest differential less realized inflation differential) Source: Table 2.5 in the Das book. 2