Abstract

The purpose of this paper is to use the intertemporal open macro models, and the solvency econometric tests derived from them, to analyze the original Feldstein and Horioka saving-investment correlation. The solvency constraint implies that saving and investment are cointegrated with a coefficient of one and, therefore, that the current account is stationary. Since the Feldstein-Horioka cross-section regression measures the average longrun coefficient, it is possible then to argue that it is capturing the unit coefficient implied by the solvency constraint and not some measure of capital mobility.

JEL Classification: C23; F31.