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The Feldstein-Horioka puzzle: A panel smooth transition regression approach

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  • Fouquau, Julien
  • Hurlin, Christophe
  • Rabaud, Isabelle

Abstract

This paper proposes an original framework to determine the relative influence of fivefactors on the Feldstein and Horioka result of OECD countries with a strong saving-investment association. Based on panel threshold regression models, we establishcountry-specific and time-specific saving retention coefficients for 24 OECD coun-tries over the period 1960-2000. These coefficients are assumed to change smoothly,as a function of five threshold variables, considered as the most important in theliterature devoted to the Feldstein and Horioka puzzle. The results show that; de-gree of openness, country size and current account to GDP ratios have the greatestinfluence on the investment-saving relationship.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 2 (March)
Pages: 284-299

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:2:p:284-299

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Web page: http://www.elsevier.com/locate/inca/30411

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References

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  1. Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 327-342, December.
  2. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
  3. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  4. Tesar, L.L., 1988. "Savings, Investment And International Capital Flows," RCER Working Papers 154, University of Rochester - Center for Economic Research (RCER).
  5. Martin Feldstein & Philippe Bacchetta, 1992. "National Saving and International Investment," NBER Working Papers 3164, National Bureau of Economic Research, Inc.
  6. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056, HAL.
  7. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  8. González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005. "Panel Smooth Transition Regression Models," Working Paper Series in Economics and Finance 604, Stockholm School of Economics.
  9. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 169-88, April.
  10. Coiteux, Martin & Olivier, Simon, 2000. "The saving retention coefficient in the long run and in the short run: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 535-548, August.
  11. Krol, Robert, 1996. "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 467-474, June.
  12. W. Jos Jansen, 2003. "International Capital Mobility: Evidence from Panel Data," International Finance 0310003, EconWPA.
  13. Alan M. Taylor, 1994. "Domestic Saving and International Capital Flows Reconsidered," NBER Working Papers 4892, National Bureau of Economic Research, Inc.
  14. Cheng Hsiao & M. Hashem Pesaran, 2004. "Random Coefficient Panel Data Models," CESifo Working Paper Series 1233, CESifo Group Munich.
  15. Ho, Tsung-Wu, 2003. "The saving-retention coefficient and country-size: The Feldstein-Horioka puzzle reconsidered," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 387-396, September.
  16. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  17. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
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