Capital mobility in Sweden: a time-varying parameter approach

Abstract

This article investigates the degree of capital mobility in Sweden during 1993 to 2004 using quarterly data. A time varying parameter model is estimated by the Kalman filter, and it shows that the relationship between investment as share in gross domestic product (GDP) and saving as share in GDP is much less than one (within the interval of 0.25–0.35), indicating substantial capital mobility. However, since the coefficient in each period is statistically different from zero, capital is still not perfectly mobile. Nevertheless, capital mobility seems to have increased until 1995 when Sweden became a member of EU and after membership there seems to be no significant increase in capital mobility.

Notes

¹ Early applications of the Kalman filter are Taylor (1986) and Engle and Watson (1987). For more details on state space models the interested reader is referred to Harvey (1989, 1993). See also Hatemi-J (2002).