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Public and private saving and investment

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  • Eric van Wincoop
  • Jane Marrinan

Abstract

We decompose aggregate saving and investment into its public and private components and then document a variety of ``stylized facts'' associated with saving and investment rates for a sample of 15 countries over the period 1975--1989. In order to see whether these empirical relationships are consistent with a world of perfect capital mobility we develop a multi--country model with free trade in a riskfree bond and calibrate it to the fifteen OECD countries. We pay special attential to modeling the fiscal policy rules. The model performs remarkably well in accounting for a wide variety of time series relationships. Nonetheless the model is not able to capture the cross sectional aspect of the data. In particular, the model cannot account for both the large cross country correlation between aggregate saving and investment rates and the very negative cross country relationship between the public and private saving minus investment gaps.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 172.

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Date of creation: Jun 1996
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Handle: RePEc:upf:upfgen:172

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Web page: http://www.econ.upf.edu/

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Keywords: Saving; investment; fiscal policy; current account;

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References

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  1. Martin Feldstein, 1991. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 331-353 National Bureau of Economic Research, Inc.
  2. Lawrence H. Summers, 1986. "Tax Policy and International Competitiveness," NBER Working Papers 2007, National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
  4. Canova, Fabio, 1993. "Sources and Propagation of International Business Cycles: Common Shocks or Transmission?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 781, C.E.P.R. Discussion Papers.
  5. 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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  7. Baxter, M. & Crucini, M., 1991. "Business Cycles and the Asset Structure of Foreign Trade," RCER Working Papers 316, University of Rochester - Center for Economic Research (RCER).
  8. Willem H. Buiter, 1984. "Fiscal policy in open, interdependent economies," NBER Working Papers 1429, National Bureau of Economic Research, Inc.
  9. Michael Mussa & Morris Goldstein, 1993. "The integration of world capital markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 245-330.
  10. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, American Economic Association, vol. 81(2), pages 222-26, May.
  11. Baxter, M. & Crucini, M.J., 1990. "Explaining Saving/Investment Correlation," RCER Working Papers 224, University of Rochester - Center for Economic Research (RCER).
  12. Gary D. Hansen & Randall Wright, 1992. "The labor market in real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-12.
  13. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
  14. 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.
  15. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 63(251), pages 495-512, August.
  16. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 28(3), pages 411-434, December.
  17. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 797-818, September.
  18. Borensztein, Eduardo R., 1989. "Fiscal policy and foreign debt," Journal of International Economics, Elsevier, Elsevier, vol. 26(1-2), pages 53-75, February.
  19. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 994-1010, December.
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  21. Tobin, James, 1983. "'Domestic saving and international capital movements in the long run and the short run' by M. Feldstein," European Economic Review, Elsevier, Elsevier, vol. 21(1-2), pages 153-156.
  22. Martin Feldstein & Philippe Bacchetta, 1989. "National Saving and International Investment," NBER Working Papers 3164, National Bureau of Economic Research, Inc.
  23. Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, Elsevier, vol. 3(3), pages 327-342, December.
  24. Baxter, M., 1992. "Financial Market Linkages and the International Transmission of Fiscal Policy," RCER Working Papers 336, University of Rochester - Center for Economic Research (RCER).
  25. Kollmann, R., 1993. "Fiscal Policy, Technology Shcks and the US Trade Balance Deficit," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9313, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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Cited by:
  1. Michael Gail, 1998. "Stylized Facts and International Business Cycles - The German Case," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 69-98, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 09 Jul 2000.
  2. Robert Kollmann, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," ULB Institutional Repository 2013/7640, ULB -- Universite Libre de Bruxelles.

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