Examining the Feldstein–Horioka puzzle using common factor panels and interval estimation

Transition of the Feldstein-Horioka Puzzle

“…The hypothesis that international capital flows are mobile can be rejected no matter how many common factors are considered, as this table shows. The confidence intervals presented in the upper panel of Table 15 are fundamentally identical with those presented in [26] in an attempt to reconcile the different estimation results in the literature reported by Greenway-Mcgrevy, Han, and Sul [63]. A new round of bootstrap resampling was applied for the present study to derive the results presented in the upper panel of Table 15, in which the estimates of â turned out to be the same as before.…”

“…Segmentation of the observation period in the literature corresponds to the mid-1990s, during which two important events of goods markets integration were taking place: EU and euro zone formation. This paper presents analyses of regional data of Japan and Indonesia in line with earlier reports by Sinn [28] for the US, Bayoumi and Rose [29] for the UK, Thomas [30] for the UK, Germany, and Canada, Yamori [31] and Dekle [32] for Japan, and [26] for Japan, Indonesia, and the Philippines. The original citation of this literature was a reference to work by [25].…”

“…Estimation of Equation (1) is hindered by these common effects 9 in measuring capital flow mobility across international frontiers. The simultaneity problem caused by common effects was treated in the literature using methods of instrumental variables (Ginama,Hayakawa,and Kanmei [26], Thomas [30], Yamori [31], Dekle [32], Feldstein-Horioka [33]), using fixed-effects panel regression methods (Kitamura and Fujiki [2], Krol [3] 10 ), using auxiliary regression to filter out the influences of common effects (IW [40]), using common-factor augmented regressions ( [10]), and using interactive fixed effects common factor panel regression method ( [26]).…”

“…Ginama, Hayakawa, and Kanmei [26] examined two panel datasets of OECD countries comprising 24 countries during 1968-1996 as dataset I, and 29 countries during 1997-2015 as dataset II by application of the interactive fixed effects common factor panel regression method (Moon and Weidner (MW, hereafter) [27]). The results were consistent with the interpretation that the F-H puzzle existed in period I, but that it ceased to exist in period II.…”

“…The confidence intervals of the correlation coefficient are consistent with mobile capital flows across international and intranational borders when the intervals include the value of zero in the region. This criterion was applied to analyses of regional Philippines data reported by [26]. The variance ratio, however, would take greater values in cases for which the capital flows are mobile than in cases of immobile capital flows.…”