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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, July.
    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. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
    2. Reuven Glick & Kenneth Rogoff, 1993. "Global versus country-specific productivity shocks and the current account," International Finance Discussion Papers 443, Board of Governors of the Federal Reserve System (U.S.).
    3. Robert J. Barro, 1991. "World Interest Rates and Investment," NBER Working Papers 3849, National Bureau of Economic Research, Inc.
    4. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    5. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
    6. Charlotte Ostergaard & Bent E. Serensen & Oved Yosha, 2002. "Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 634-645, June.
    7. 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.
    8. 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 C00-112, University of California at Berkeley.
    9. Allan W. Gregory & Allen C. Head, 1996. "Common and Country-specific Fluctuations in Productivity, Investment, and the Current Account," Working Papers 931, Queen's University, Department of Economics.
    10. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
    11. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
    12. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
    13. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April.
    14. 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, vol. 25(1), pages 221-47, February.
    15. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
    16. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
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    Cited by:
    1. 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 2004-05, Department of Economics, University of Houston.
    2. Kumar, Saten & Sen, Rahul & Srivastava, Sadhana, 2014. "Does economic integration stimulate capital mobility? An analysis of four regional economic communities in Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 33-50.
    3. 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.
    4. Domenico Giannone & Lucrezia Reichlin, 2005. "Trends and cycles in the Euro Area: how much heterogeneity and should we worry about it?," Macroeconomics 0511016, EconWPA.
    5. Marlene Amstad & Andreas M. Fischer, 2005. "Shock identification of macroeconomic forecasts based on daily panels," Staff Reports 206, Federal Reserve Bank of New York.
    6. Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2010. "Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks," Economic Modelling, Elsevier, vol. 27(5), pages 1269-1273, September.
    7. 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, vol. 5(4), December.
    8. Andrea R. Lamorgese & Gianmarco I.P. Ottaviano, 2006. "Intercity interactions: evidence from the US," 2006 Meeting Papers 667, Society for Economic Dynamics.
    9. Saten Kumar & B. Bhaskara Rao, 2011. "A Time‐series Approach to the Feldstein–Horioka Puzzle with Panel Data from the OECD Countries," The World Economy, Wiley Blackwell, vol. 34(3), pages 473-485, 03.
    10. Iñaki Erauskin-Iurrita, 2009. "The current account and the new rule in a not-so-small open economy," Investigaciones Economicas, Fundación SEPI, vol. 33(3), pages 529-557, September.
    11. Costantini, Mauro & Gutierrez, Luciano, 2013. "Capital mobility and global factor shocks," Economics Letters, Elsevier, vol. 120(3), pages 513-515.
    12. 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.
    13. Laura Jaramillo & Anke Weber, 2013. "Global Spillovers into Domestic Bond Markets in Emerging Market Economies," IMF Working Papers 13/264, International Monetary Fund.
    14. Pavel Trunin & Andrey Zubarev, 2013. "The Feldstein-Horioka Puzzle: Modern Aspects," Working Papers 0070, Gaidar Institute for Economic Policy, revised 2013.
    15. Salvatore Dell'Erba & Sergio Sola, 2013. "Fiscal Policy, Interest Rates and Risk Premia in Open Economy," IHEID Working Papers 05-2013, Economics Section, The Graduate Institute of International Studies.
    16. Cimadomo, Jacopo & Bénassy-Quéré, Agnès, 2012. "Changing patterns of fiscal policy multipliers in Germany, the UK and the US," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 845-873.
    17. John C. Bluedorn, 2005. "Hurricanes: Intertemporal Trade and Capital Shocks," Economics Papers 2005-W22, Economics Group, Nuffield College, University of Oxford.

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