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A functional coefficient model view of the Feldstein-Horioka puzzle

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Author Info
Herwartz, Helmut
Xu, Fang

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Abstract

What does the saving-investment (SI) relation really measure and how should the (SI) relation be measured? These are two of the most discussed issues triggered by the so called Feldstein-Horioka puzzle. Based on panel data we introduce a new variant of functional coefficient models that allow to separate long and short to medium run parameter dependence. We apply the latter to uncover the determinants of the SI relation. Macroeconomic state variables such as openness, the age dependency ratio, government current and consumption expenditures are found to affect the SI relation significantly in the long run. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,14.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5613

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Saving-investment relation; Feldstein-Horioka puzzle; functional coefficient models;

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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References listed on IDEAS
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