Robustness of Macroeconomic Indicators of Capital Mobility

IMF Working Papers, December 1, 1992

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Bibliographic details

• Authors: Enrique G. Mendoza
• Published: December 1, 1992
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451853391.001

Summary

• Author: Enrique G. Mendoza
• Date: December 1, 1992
• Core question: How well do common macroeconomic indicators identify capital mobility within an intertemporal equilibrium model of a small open economy?

Methodology

• Model framework: Intertemporal equilibrium model of a small open economy.
• Solution approach: Recursive numerical solution methods.
• Indicators computed:
  • Measures of consumption smoothing.
  • Savings–investment correlation.
  • Variability of investment.
  • Output-correlation of investment.
• Environment: Model characterized in the presence of income disturbances.

Key findings

• None of the computed statistics is a reliable indicator of capital mobility on its own.
• The reliability of these indicators depends critically on information regarding:
  • Differences in preferences.
  • Differences in technology.
  • The nature of stochastic shocks.

Implications

• Empirical assessment of capital mobility requires accounting for cross-country or cross-context heterogeneity in preferences and technology, and careful modeling of shock processes.
• Policy or inference based solely on consumption smoothing, savings–investment correlation, or investment variability/output-correlation may be misleading without additional structural information.