Policy Regime Change and the Feldstein-Horioka Puzzle: The UK Evidence

Özmen, Erdal; Parmaksiz, Kağan

doi:10.2139/ssrn.263229

Cited by 10 publications

(11 citation statements)

References 27 publications

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“…In this sense, Parmaksız (2003a, 2003b), Narayan and Narayan (2010), Verma and Saleh (2011), and Ketenci (2012) implement the Gregory-Hansen (1996) onebreak cointegration test 2 . While Özmen and Parmaksız (2003a) deduce that the savinginvestment relationship in the UK disappears after the abolishment of foreign exchange controls, Narayan and Narayan (2010) and Verma and Saleh (2011) find no link between saving and investment in G7 countries and Saudi Arabia, respectively. Their results also uncover that the capital mobility in these countries is remarkably stable.…”

Section: Literature Reviewmentioning

confidence: 93%

The Feldstein–Horioka puzzle in the presence of structural breaks: evidence from China

Yıldırım

Orman²

2017

Journal of the Asia Pacific Economy

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This study explores the empirical validity of the Feldstein-Horioka puzzle for China in the presence of structural breaks. To this end, we employ the recently proposed multiple-break cointegration test of Maki (2012), along with the one-break Gregory and Hansen (1996) cointegration test. Once the existence of the cointegration between domestic savings and investment is ensured by allowing for endogenous structural breaks, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation procedures are implemented to obtain reliable inferences from the cointegrating regression. Empirical results reveal that the relationship between Chinese domestic savings and investment has changed with the regime shift towards flexible exchange rates and the 2008-2009 global financial crises. More specifically, with the introduction of managed floating exchange rate regime, a substantial reduction is observed in the almost unitary saving retention coefficient of the fixed exchange rate period. Furthermore, the correlation has experienced a slight increase since 2009, which coincides with the worldwide protectionist policies adopted in the depth of the global financial crisis.

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Section: Literature Reviewmentioning

confidence: 93%

The Feldstein–Horioka puzzle in the presence of structural breaks: evidence from China

Yıldırım

Orman²

2017

Journal of the Asia Pacific Economy

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“…The second explanation is that the empirical relationship between saving and investment that is being estimated need not be invariant to policy regime changes, which may lead to structural shifts in both saving and investment and hence in the relationship between them (e.g. see Alexakis and Apergis, 1994; Sarno and Taylor, 1998;Corbin, 2004; Özmen and Parmaksiz, 2004).…”

Section: An Application To the Current Accountmentioning

confidence: 99%

Testing for Panel Cointegration with Multiple Structural Breaks*

Westerlund¹

2006

Oxf Bull Econ Stat

273

252

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This paper proposes a Lagrange multiplier (LM) test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the solvency of the current account, we find evidence of cointegration between saving and investment once a level break is accommodated.

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“…The FH puzzle is examined by using econometric methods like unit root, structural break or cointegration tests (Alexakis & Apergis, 1994;De Vita & Abbott, 2002;Miller, 1988;Narayan, 2005aNarayan, , 2005bPelagidis & Mastroyiannis, 2003;Sinha & Sinha, 2004), or panel data and panel cointegration approach (Adedeji & Thornton, 2008;Bangake & Eggoh, 2011;Chakrabarti, 2006;Christopoulos, 2007;Corbin, 2001;Fouquau, Hurlin, & Rabaud, 2008;Herwartz & Xu, 2010;Ho, 2003;Jansen, 2000;Ketenci, 2013;Kim, Oh, & Jeong, 2005;Kollias, Mylonidis, & Paleologou, 2008;Krol, 1996;Narayan & Narayan, 2010). Studies, adopting time series methods, mainly focus on the role of policy regime changes, which provide stronger evidence of FH puzzle incorporating structural breaks (Sarno & Taylor, 1998;De Vita & Abbott, 2002;Ozmen & Parmaksız, 2003a, Ozmen & Parmaksız, 2003bMastroyiannis, 2007;Telatar, Telatar, & Bolatoglu, 2007;Ketenci, 2013).…”

Section: Introductionmentioning

confidence: 99%

Does the Feldstein–Horioka puzzle exist among South Asian countries? A regime‐switching approach

Patra

Mohanty

2020

Journal of Public Affairs

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A plethora of literature has been undertaken to study the validity of the Feldstein–Horioka (FH) puzzle. However, divergent views continue to persist in the FH puzzle literature. This study explores the empirical validity of the FH puzzle in the case of South Asian countries using annual data from 1960 to 2017. Both panel data approach and Markov‐switching regression approach are used to empirically analyze the FH puzzle. The results of the cointegration test confirm the long‐run relationships between saving and investment in the selected South Asian countries. The results of Markov‐switching regression confirm that the saving‐retention coefficient has shifted from high to low values and also from low to high values. Thus, the FH puzzle exists for a particular time period and mostly depends on the regime shifts in the South Asian countries. The results of panel fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) methods also confirm that FH puzzle holds for the South Asian countries. Therefore, the study suggests that any saving promotion policies are desirable for enhancing investment among the South Asian regions.

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Policy Regime Change and the Feldstein-Horioka Puzzle: The UK Evidence

Cited by 10 publications

References 27 publications

The Feldstein–Horioka puzzle in the presence of structural breaks: evidence from China

The Feldstein–Horioka puzzle in the presence of structural breaks: evidence from China

Testing for Panel Cointegration with Multiple Structural Breaks*

Does the Feldstein–Horioka puzzle exist among South Asian countries? A regime‐switching approach

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