Using the framework of a dynamic intertemporal optimization model of an open economy, it is shown that the long-run investment-saving correlation follows directly from the economy's dynamic budget constraint and this does not depend on the degree of international capital mobility. Therefore,...

This paper makes three contributions: First, I construct annual time series of gross domestic investment and national saving in the U.S. for the 1897–1949 period using historical component series. I compare the qualitative and quantitative properties of the newly constructed series with the...

Krol (1996) reports estimates of the saving-investment correlation, based on panel regressions, that are much lower than commonly found in the literature. This note argues that this low estimate is not related to the panel estimation technique, as Krol claims, but largely to the inclusion of...

In the paper we extend Gregory and Hansen’s (1996)ADF, Za, Zt cointegration tests to panel data, using the method proposed in Maddala and Wu (1999). We test the null hypothesis of no cointegration for all the units in the panel against the alternative hypothesis of cointegration, while...

The New Open Economy Macroeconomics has allowed economists to tackle classical problems with new tools, while also generating new ideas and questions. In their attempts to make the new models capture empirical regularities, researchers have entertained a variety of assumptions about the...

Just when China’s leaders receive conflicting signals of “overheating” and “below-potential growth”, they encounter tremendous external pressure to revalue the Renminbi (RMB) substantially. Our conclusion is that the major macroeconomic challenges have their roots in China’s...

Since the start of the 1990s, several countries have abandoned fixed- but-adjustable exchange rate regimes. The tendency towards floating exchange rate regimes, or alternatively monetary unions, has given rise to a debate on the disappearance of pure currency crises, and the literature has...

This paper gauges the causal relationship between external and budget deficits by using Blanchard's overlapping generations model. This model sests the twin deficits hypothesis (i.e. there is a positive relationship between the deficits) and the Ricardian equivalence hypothesis (i.e. there is no...