Saving-investment dynamics and capital mobility in the US and Japan

This paper points out that a high long-run correlation between saving and investment is better interpreted as reflecting the operation of a country's intertemporal budget constraint rather than as an indicator of capital mobility. Inferences about capital mobility can instead be made from the divergent short-run dynamic responses of saving and investment to shocks. Using post-war quarterly data for the US and Japan, the paper assesses the characteristics of saving and investment behavior under different regulatory environments. It finds mixed evidence of changes in the short-run dynamics of saving and investment that suggest increased capital mobility in the 1980s.