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A model for capital movements in Finland's balance of payments

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Summary

In this paper a disaggregated quarterly model for capital movements in Finland's balance of payments is presented. This model is one block of the Bank of Finland quarterly econometric model of the Finnish economy.

The structural equations are seen, in the case of Finland, mainly from the demand side. These equations are derived using the expected utility framework. However, supply conditions, in the form of domestic credit rationing and especially in the form of extensive controls on international capital movements, also play a considerable role.

The model has been estimated by ordinary least squares, using quarterly seasonally adjusted data for the period 1961–1971 and has been submitted to an ex-ante forecast test for the years 1971–1974. Portfolio theory seems, on balance, to explain Finland's foreign long-term and short-term capital movements quite satisfactorily. However, the interest rate effects are often quite weak. This might be attributed to the empirical difficulties of treating risk factors and the tightness of credit.

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References

  • Amano, A.: International Capital Movements: Theory and Estimation, The International Linkage of National Economic ModelsBall, R. (ed.), Amsterdam 1973.

  • Bryant, R., andP. Hendershott: Financial Capital Flows in the Balance of Payments of the United States: An Exploratory Empirical Study, Princeton 1970.

  • Kukkonen, P.: Features of the Finnish Monetary Relationships, Ekonomiska Samfundets Tidskrift, No. 2, 1973.

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  • Miller, N., andM.v.N. Whitman: A Mean-Variance Analysis of United States Long-Term Portfolio Foreign Investment, Quarterly Journal of Economics, vol. 84 (2), 1970.

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  • Puntila, M.: Monetary Policy in Finland, Bank of Finland Monthly Bulletin, August 1972.

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  • Bank of Finland Institute for Economic Research: A Quarterly Model of the Finnish Economy by the Model Project Team of the Research Department, Series D: 29, 1972.

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Authors and Affiliations

  1. Bank of Finland, P.O.B. 160, 00101, Helsinki 10, Finland

    E. Aurikko

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  1. E. Aurikko
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Additional information

Financial support from the Yrjö Jahnsson Foundation is gratefully acknowledged.

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Aurikko, E. A model for capital movements in Finland's balance of payments. Empirical Economics 1, 103–118 (1976). https://doi.org/10.1007/BF01764611

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  • DOI: https://doi.org/10.1007/BF01764611

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