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A Time Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries

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  • Kumar, Saten
  • Rao, B. Bhaskara

Abstract

The Pedroni method is used to estimate the Feldstein-Horioka equation from 1960-2007 with a panel of 13 OECD countries. It is found that the Feldstein-Horioka puzzle exists in a weaker form with a much reduced saving retention coefficient. The Bretton Woods agreement in particular has weakened the Feldstein-Horioka puzzle by significantly improving the international capital mobility. In comparison the Maastricht agreement seems to have improved capital mobility only by a small magnitude. The structural break tests of Westerlund are used in this paper.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18464.

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Date of creation: 08 Nov 2009
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Handle: RePEc:pra:mprapa:18464

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Keywords: Feldstein-Horioka puzzle; Structural breaks; Bretton Woods and Maastricht agreements; International capital mobility;

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  14. Dimitris Christopoulos, 2007. "A reassessment of the Feldstein-Horioka hypothesis of perfect capital mobility: evidence from historical data," Empirica, Springer, vol. 34(3), pages 273-280, July.
  15. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
  16. Helmut Herwartz & Fang Xu, 2009. "Panel data model comparison for empirical saving-investment relations," Applied Economics Letters, Taylor & Francis Journals, vol. 16(8), pages 803-807.
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Cited by:
  1. Ketenci, Natalya, 2010. "The Feldstein –Horioka Puzzle and structural breaks: evidence from EU members," MPRA Paper 26010, University Library of Munich, Germany.
  2. Natalya Ketenci, N., 2010. "The Feldstein Horioka Puzzle by groups of OECD members: the panel approach," MPRA Paper 25848, University Library of Munich, Germany.
  3. 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.
  4. Ketenci, Natalya, 2013. "The Feldstein–Horioka puzzle in groupings of OECD members: A panel approach," Research in Economics, Elsevier, vol. 67(1), pages 76-87.
  5. Rao, B. Bhaskara & Kumar, Saten, 2010. "Error-Correction Based Panel Estimates of the Demand for Money of Selected Asian Countries with the Extreme Bounds Analysis," MPRA Paper 27263, University Library of Munich, Germany.

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