The impact of cross—section dependence on the capital mobility estimation

Authors

  • Lukas Fryd University of economics, Prague

DOI:

https://doi.org/10.30585/icabl-cp.v3i1.486

Keywords:

Feldstein-Harioka, cross-section dependency, common correlated effects

Abstract

Feldstein-Horioka model is one of the most famous puzzles in the international economics. The goal of this paper is to show that cross-section dependence among the countries plays important role in the estimation framework. We utilize Common Correlated Effects estimator which gives consistent estimates under the existence of cross-section dependence. We find that traditional assumption about I(1) process of dependent and the independent variable is misleading. Then we show the significant differences in the results between traditional fixed effect estimator and Common Correlated Effects estimator and so we give the next possible explanation to this puzzle.  

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References

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Published

2020-03-28

How to Cite

Fryd, L. (2020). The impact of cross—section dependence on the capital mobility estimation. International Conference on Advances in Business and Law (ICABL), 3(1), 84-87. https://doi.org/10.30585/icabl-cp.v3i1.486