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A Time‐series Approach to the Feldstein–Horioka Puzzle with Panel Data from the OECD Countries

  • Saten Kumar
  • B. Bhaskara Rao

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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Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 34 (2011)
Issue (Month): 3 (03)
Pages: 473-485

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Handle: RePEc:bla:worlde:v:34:y:2011:i:3:p:473-485
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  17. Jos Jansen, W, 1996. "Estimating saving-investment correlations: evidence for OECD countries based on an error correction model," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 749-781, October.
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