The Feldstein–Horioka puzzle revisited

Ho, Tsung Wu

doi:10.1016/s0261-5606(02)00005-0

Cited by 79 publications

(47 citation statements)

References 23 publications

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“…Second, the retention coefficient shows higher values when the DOLS and FMOLS estimators are considered. These findings are in line with those obtained in previous studies (see, e.g., Ho, 2002;Coakley et al, 2004;Adedeji and Thornton, 2008). Third, the estimated retention coefficient is very close to zero when the CUP-FM estimator is considered.…”

Section: S It Y Itsupporting

confidence: 92%

Capital mobility and global factor shocks

Costantini

Gutierrez

2013

Economics Letters

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h i g h l i g h t s• We focus on the effects of global factors on the saving-investment relationship.• We show that if investments and savings are affected by idiosyncratic and global components, they must be cointegrated.• When global shocks are taken into account through common factors, the estimated saving-retention coefficient is close to zero. a r t i c l e i n f o b s t r a c tThis paper focuses on the effects of global factors on the saving-investment relationship. We prove that, if investments and savings are affected by idiosyncratic and global components, they must be cointegrated to obtain reliable estimates of the saving-retention coefficient. When global shocks are taken into account through common factors, we find that the estimated saving-retention coefficient is close to zero for a panel of 21 OECD countries.

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Section: S It Y Itsupporting

confidence: 92%

Capital mobility and global factor shocks

Costantini

Gutierrez

2013

Economics Letters

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“…Within this empirical framework the evidence suggests that co-integration between investment and savings has not been rejected, when tested indirectly as in Coakley et al (1996) and Jansen (2000), but is rejected while tested directly by means of the Johansen test on savings and investment as in Ho (2002a and2002b) and Blanchard and Giavazzi (2002).…”

Section: − ( + + ) =mentioning

confidence: 94%

An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain

Litsios

Pılbeam

2017

Economic Modelling

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We provide new evidence that current account balances in Greece, Portugal and Spain have become non-stationary after the adoption of the euro implying that there is no long-run stable relationship between savings and investment contrary to the Feldstein-Horioka puzzle. This can be taken as evidence of unsustainable current account balances and loss of solvency for the underlying economies. Using the ARDL methodology we also report a statistical association between fiscal balances and current account balances which implies that fiscal austerity can help these economies to reduce their current account deficits and restore their competitiveness. Our empirical evidence also suggests a particularly strong significant negative association between domestic investment and current account deficits.The magnitude of this latter effect may have important policy implications concerning the ways in which investment is financed to improve external competitiveness.

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“…The authors found evidence for capital mobility for only 16 countries, most of which are developing countries, concluding that the error correction model approach is not a good measure for the capital mobility in developed countries. For another example, see Ho (2002).…”

Section: Introductionmentioning

confidence: 99%

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

Ketenci

2012

Economic Modelling

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The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein-Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 27 European countries were used over the period of 1995-2009 on the quarterly basis. Data were extracted from the official statistical site of the European Union, Eurostat. Firstly, unit root tests were applied to the series in order to estimate the stationarity of the model variables. Two different tests were used, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Bai and Perron (1998) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WD max tests rejected the hypothesis of no breaks. Moreover, structural break locations for every series were selected by sequentially procedure, BIC and LWZ. Finally, the cointegration relationships between investment and saving flows of European Union members were tested. Three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations.The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. In most cases of estimations saving-investment correlation has a tendency to increase with regime changes. However, the estimated saving retention coefficient in the presence of structural breaks using the Bai and Perron (1998) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. According to Feldstein and Horioka (1980), a higher saving-investment correlation is related to lower capital mobility. Therefore, the contradicting results between saving retention coefficient estimates and cointegration tests illustrate that cointegration indicates a rather current account solvency condition than capital mobility. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein-Horioka Puzzle in the considered EU countries. JEL: F32Key Words: F eldstein-Horioka puzzle, saving-investment a ssociation, capital mobility, cointegration, structural breaks, EU. Another direction is related to attempts to provide evidence that the results of...

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The Feldstein–Horioka puzzle revisited

Cited by 79 publications

References 23 publications

Capital mobility and global factor shocks

Capital mobility and global factor shocks

An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

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