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Public And Private Savings And Investments

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  • Jane Marrinan

    (Boston College and IGIER)

  • Eric Van Wincoop

    (Boston University IGIER)

Abstract

Several have shown that models with perfect international capital mobility can generate high correlations between aggregate savings and investment, as observed in the data. In this paper we decompose aggregate saving and investment into their two component parts, private and public. This leads to some striking observations. In almost all of the OECD countries we investigate during the 1975-1989 period, the private sector saving investment gap closely mirrors the government sector saving investment gap. Moreover, unlike the large aggregate saving investment correlations, private sectors saving investment correlations are on average close to zero. The paper investigates these and other moments associated with the public and private saving and investment in the context of models with perfect capital mobility. The paper devotes significant attention to modeling the government sector. Rules for taxation, government consumption and investment are specified, estimated, and fed into the model simulations. We find that while models are fiscal, technology and interest rate shocks are able to generate negative correlations between the public and private sector saving investment gaps, these correlations still fall significantly short of the very negative correlations observed in the data. Moreover, The models are not able to generate correlations between private saving and investment that are much lower than those between total saving and investment.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 259.

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Date of creation: Dec 1993
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Handle: RePEc:boc:bocoec:259

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  1. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
  2. 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.
  3. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
  4. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
  5. Lawrence H. Summers, 1988. "Tax Policy and International Competitiveness," NBER Chapters, in: International Aspects of Fiscal Policies, pages 349-386 National Bureau of Economic Research, Inc.
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  7. Kollmann, R., 1993. "Fiscal Policy, Technology Shcks and the US Trade Balance Deficit," Cahiers de recherche 9313, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  19. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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Cited by:
  1. Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 945-961, May.
  2. Michael Gail, 1998. "Stylized Facts and International Business Cycles - The German Case," Volkswirtschaftliche Diskussionsbeiträge 69-98, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 09 Jul 2000.

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