Exchange rate regimes and the Feldstein-Horioka puzzle: the French evidence

Abstract

This paper investigates whether the Feldstein and Horioka (Economic Journal, 90, 314-329, 1980) argument on domestic saving-investment relationship is supported by the French data when an endogenous structural break corresponding to a major policy regime change is taken into account. The evidence suggests that the saving-investment cointegration disappears after the estimated endogenous structural break point in 1973 coinciding with the end of the Bretton Woods system of fixed exchange rates. Consistent with a current account targeting policy, an investment-driven saving process appears to be the case for the fixed exchange rate regime period.

Does economic integration stimulate capital mobility? An analysis of four regional economic communities in Africa

“…of macroeconomic policies, institutions, other structural factors (Ozmen & parmaksiz, 2003;Ozmen, 2005). Most of the studies validate the FH findings suggesting low capital mobility and some of the explanations to this unresolved puzzle ascribes to factors such as differences in policy environment, information & technology, demography etc.…”

Financial development, exchange rate regimes and the Feldstein–Horioka puzzle: evidence from the MENA region

“…One strand of the literature focuses on empirical modeling issues like sample sensitivity (Cadoret, 2001), common contemporaneous shocks and simultaneity bias due to the endogeneity of saving (Obstfeld and Rogoff, 2000), non-linear current account dynamics (Chortareas et al 2004) and policy regime changes (Sarno and Taylor, 1998;Ho, 2000 andÖzmen andParmaksız, 2003). Transactions costs of international trade causing equity home bias (Obstfeld and Rogoff, 2000) and the definition of investment itself (Rossini and Zanghieri, 2003) are amongst the other plausible explanations of the puzzle.…”

The Feldstein–Horioka model re-visited for African countries

“…Summers' empirical tests find support for the hypothesis that fiscal policy endogeneity is, to a large extent, responsible for the high correlation between saving and investment. Other studies undertaken in relation to policy responses include Ozmen and Parmaksiz (2003) and Ozmen (2005), among many others. Ozmen and Parmaksiz (2003) examine the existence of a Feldstein-Horioka relation in the presence of a policy-related structural break in France.…”

“…Other studies undertaken in relation to policy responses include Ozmen and Parmaksiz (2003) and Ozmen (2005), among many others. Ozmen and Parmaksiz (2003) examine the existence of a Feldstein-Horioka relation in the presence of a policy-related structural break in France. They find that the Feldstein-Horioka relation disappears after the break point -the Bretton Woods fixed exchange rate regime.…”