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The Feldstein-Horioka Fact

In: NBER International Seminar on Macroeconomics 2009

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  • Domenico Giannone
  • Michele Lenza

Abstract

This paper shows that general equilibrium effects can partly rationalize the high correlation between saving and investment rates observed in OECD countries. We find that once controlling for general equilibrium effects the saving-retention coefficient remains high in the 70’s but decreases considerably since the 80’s, consistently with the increased capital mobility in OECD countries.

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This chapter was published in:

  • Lucrezia Reichlin & Kenneth D. West, 2010. "NBER International Seminar on Macroeconomics 2009," NBER Books, National Bureau of Economic Research, Inc, number reic09-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11909.

    Handle: RePEc:nbr:nberch:11909

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    1. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 967-1012, 07.
    2. Reuven Glick & Kenneth Rogoff, 1993. "Global Versus Country-Specific Productivity Shocks and the Current Acocount," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 31, Boston University, Institute for Economic Development.
    3. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 135-171, January.
    4. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C00-112, University of California at Berkeley.
    5. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 525-546, April.
    6. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics, Boston College Department of Economics 440, Boston College Department of Economics.
    7. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(2), pages 147-62, April.
    8. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
    9. Ostergaard, Charlotte & Sorensen, Bent E & Yosha, Oved, 2001. "Consumption and Aggregate Constraints: Evidence from US States and Canadian Provinces," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2947, C.E.P.R. Discussion Papers.
    10. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1216-1239, September.
    11. 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., John Wiley & Sons, Ltd., vol. 3(2), pages 169-88, April.
    12. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    13. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, American Economic Association, vol. 82(2), pages 197-202, May.
    14. Robert J. Barro, 1991. "World Interest Rates and Investment," NBER Working Papers 3849, National Bureau of Economic Research, Inc.
    15. Gregory, Allan W. & Head, Allen C., 1999. "Common and country-specific fluctuations in productivity, investment, and the current account," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(3), pages 423-451, December.
    16. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
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    Cited by:
    1. John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Series Working Papers 241, University of Oxford, Department of Economics.
    2. Costantini, Mauro & Gutierrez, Luciano, 2013. "Capital mobility and global factor shocks," Economics Letters, Elsevier, Elsevier, vol. 120(3), pages 513-515.
    3. Iñaki Erauskin-Iurrita, 2009. "The current account and the new rule in a not-so-small open economy," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 33(3), pages 529-557, September.
    4. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," Working Papers, Department of Economics, University of Houston 2004-05, Department of Economics, University of Houston.
    5. Giannone, Domenico & Reichlin, Lucrezia, 2006. "Trends and cycles in the euro area: how much heterogeneity and should we worry about it?," Working Paper Series, European Central Bank 0595, European Central Bank.
    6. Laura Jaramillo & Anke Weber, 2013. "Global Spillovers into Domestic Bond Markets in Emerging Market Economies," IMF Working Papers 13/264, International Monetary Fund.
    7. Anastasios Mastroyiannis, 2007. "Current Account Dynamics and the Feldstein and Horioka Puzzle: the Case of Greece," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 91-99, June.
    8. Amstad, Marlene & Fischer, Andreas M, 2005. "Shock Identification of Macroeconomic Forecasts Based on Daily Panels," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5008, C.E.P.R. Discussion Papers.
    9. Kumar, Saten & Rao, B. Bhaskara, 2009. "A Time Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries," MPRA Paper 18464, University Library of Munich, Germany.
    10. Saten Kumar & Rahul Sen & Sadhana Srivastava, 2014. "Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Regional Economic Communities in Africa," Working Papers, Auckland University of Technology, Department of Economics 2014-05, Auckland University of Technology, Department of Economics.
    11. Salvatore Dell'Erba & Sergio Sola, 2013. "Does Fiscal Policy Affect Interest Rates? Evidence from a Factor-Augmented Panel," IMF Working Papers 13/159, International Monetary Fund.
    12. Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2009. "Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks," MPRA Paper 15312, University Library of Munich, Germany.
    13. Ambaye, G. G. & Berhanu, T. & Abera, G., 2013. "Modeling the Determinats of Domestic Private Investments in Ethiopia," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 5(4), December.
    14. Cimadomo, Jacopo & Bénassy-Quéré, Agnès, 2012. "Changing patterns of fiscal policy multipliers in Germany, the UK and the US," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 845-873.
    15. Pavel Trunin & Andrey Zubarev, 2013. "The Feldstein-Horioka Puzzle: Modern Aspects," Working Papers 0070, Gaidar Institute for Economic Policy, revised 2013.
    16. Salvatore Dell'Erba & Sergio Sola, 2013. "Fiscal Policy, Interest Rates and Risk Premia in Open Economy," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 05-2013, Economics Section, The Graduate Institute of International Studies.
    17. Andrea R. Lamorgese & Gianmarco I.P. Ottaviano, 2006. "Intercity interactions: evidence from the US," 2006 Meeting Papers, Society for Economic Dynamics 667, Society for Economic Dynamics.

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