NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Integrated are World Capital Markets? Some New Tests

Maurice Obstfeld

NBER Working Paper No. 2075 (Also Reprint No. r1324)
Issued in November 1989
NBER Program(s):   ITI   IFM

This paper present some new empirical evidence on the extent of world capital-market integration. The first set of tests carried out uses data from different countries to compare internationally expected marginal rates of substitution between consumption on different dates. If residents of different countries have access to a nominally risk-free bond denominated in dollars, say, their common expected marginal rate of substitution of future for present dollars should equal the gross nominal return on dollar bonds. Tests of the international equality of expected marginal substitution rates yield evidence consistent with a substantial degree of international capital-market integration after, but not before, 1973. These tests are naturally based on a particular model of intertemporal consumption choice, but direct estimation of the inter-country relationships implied by that model lends support to its assumptions. These last findings are relevant to the current debate in macroeconomics about the role of intertemporal substitution. The second set of tests conducted in this paper concerns correlations between countries' saving and investment rates. For a sample often countries, correlations between annual changes in saving and investment rates over the period 1948-1984 look quite similar to those found in quarterly data. Surprisingly, however, the correlation coefficients are often lower before the mid-1960s than afterward This finding throws further doubt on the interpretation of saving-investment correlation coefficients as structural parameters reflecting the response of domestic investment to shifts in national saving.

download in pdf format
   (861 K)

download in djvu format
   (578 K)

email paper

This paper is available as PDF (861 K) or DjVu (578 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Debt, Stabilization and Development: Essays in Memory of Carlos Diaz- Alejandro, edited by G. Calvo, R. Findlay, and Jorge de Macedo, pp. 134- 155. New York: Harper & Row, 1989.

Users who downloaded this paper also downloaded these:
Obstfeld w1692 Capital Mobility in the World Economy: Theory and Measurement
Obstfeld w4534 International Capital Mobility in the 1990s
Obstfeld w4308 Are Industrial-Country Consumption Risks Globally Diversified?
Obstfeld and Taylor Globalization and Capital Markets
Alesina, Grilli, and Maria Milesi-Ferrett w4353 The Political Economy of Capital Controls
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us