Capital controls, financial crisis and the investment saving nexus: Evidence from Iceland

Files in This Item:
File Description SizeFormat 
gearywp201518.pdf191.97 kBAdobe PDFDownload
Title: Capital controls, financial crisis and the investment saving nexus: Evidence from Iceland
Authors: Raza, Hamid
Zoega, Gylfi
Kinsella, Stephen
Permanent link:
Date: Aug-2015
Online since: 2016-01-25T12:54:45Z
Abstract: We investigate the Feldstein and Horioka (1980) hypothesis for Iceland. First, we analyse the saving-investment (S-I) correlation for the period of restricted capital mobility between 1960 and 1994. We then add a period of free capital mobility between 1994 and 2008 and estimate the correlation for the period 1960-2008. Finally, we extend our analysis to the 2008 to 2014 period, when capital controls were imposed in response to the financial crisis. Finding cointegration between savings and investment for all the three regimes, the evidence shows that the S-I correlation is stronger during the period of capital controls that prevailed in 1960-1994 and becomes weaker when the capital mobility regime is included. However, the correlation weakens further when the post-crisis regime of capital controls is included, which implies that savings and investment are not related during the recent period of crisis and capital controls. The implications of our findings for post-crisis policy making are discussed.
Type of material: Working Paper
Publisher: University College Dublin. Geary Institute
Series/Report no.: UCD Geary Institute For Public Policy Discussion Paper Series; WP2015/18
Keywords: Feldstein-Horioka puzzleCapital mobilityFinancial crisis
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Geary Institute Working Papers

Show full item record

Download(s) 50

checked on May 25, 2018

Google ScholarTM


This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.