Impact of the Global Financial Crisis on the Level of Capital Mobility in EU Members

This study investigates the level of capital mobility in European Union members and the impact of the global financial crisis. This study employs the standard generalized method of moments (GMM) estimation technique, developed by Hansen (1982). The GMM was first introduced for time series data and is generally used to correct for bias caused by endogenous explanatory variables. The GMM weighting matrix accounts for serial correlation of unknown form and for heteroskedasticity. The validity of the Feldstein-Horioka puzzle is investigated in this study in the presence of the global financial crisis. This study estimates quarterly data for 27 European countries for the period of 1995-2013. High capital mobility is supported by results; however, consideration of the global financial crisis in the model revealed decline in capital mobility. The application of the GMM framework provides results that do not support the validity of the Feldstein-Horioka puzzle in most of the estimated countries in the EU