Capital mobility measurements

Capital as one of the most important productive inputs is - under globalization - characterized by a certain mobility degree, which can be a significant factor that influences economic growth. According to the Feldstein - Horioka hypothesis, perfect capital mobility means that domestic savings and investment rates are uncorrelated. The optimality of capital mobility can be considered by using the consumption-smoothing current account approach: the mobility of capital flows is optimal when it allows for full consumption smoothing over time through the dynamics of the current account in the face of shocks to domestic output, investment, and government expenditure. The consumption-smoothing approach is based on comparing consumption-smoothing part of current account and optimal current account constructed by the help of expected increments of net foreign assets constructed on the base of relevant VAR model formulation. An application to the Czech Republic and Slovakia is performed finding that none of both countries exhibit an optimal level of capital mobility.