The Feldstein-Horioka Paradox: A New Perspective from the Institutional Sector Level
Working on a sample of OECD countries spanning the period 1970-2003, this paper contributes to the literature on the Feldstein-Horioka puzzle by making three main innovations: First, it goes beyond the traditional national-level investment-saving equations to estimate, for the first time, regressions at the institutional sector level (households, corporations, and government). Second, it explores the implications of giving separate consideration to current account deficits and surpluses. Lastly, it uses advanced panel data techniques to deal with endogeneity and to distinguish long- and short-run effects. After discarding the influence of common factors, the conclusions are that: (i) The national Feldstein-Horioka coefficient is in the vicinity of 0.5, but sectoral coefficients are much lower and even insignificantly different from zero; (ii) Such positive and significant national coefficient would not reflect frictions in international credit markets but just a fiscal current account targeting policy; (iii) Nevertheless, when the sample is split into deficit and surplus years, a higher and significant correlation emerges for the former at the national, household, and corporate level, implying that credit imperfections still play a role for the private but not for the public sector. Equally noteworthy, household correlation is still positive and significant, yet lower, for surplus years; and (iv) Against the background of a unitary long-run coefficient to satisfy the intertemporal budget constraint, the long-run relationship is 0.75 for national data. Furthermore, we draw a number of relevant policy implications for Argentina and Chile.
|Date of creation:||May 2006|
|Contact details of provider:|| Postal: Reconquista 266 - C1003ABF - Buenos Aires|
Phone: (54-11) 4348-3582
Fax: (54-11) 4348-3794
Web page: http://www.bcra.gov.ar
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Glick, Reuven & Rogoff, Kenneth, 1995.
"Global versus country-specific productivity shocks and the current account,"
Journal of Monetary Economics,
Elsevier, vol. 35(1), pages 159-192, February.
- Reuven Glick & Kenneth Rogoff, 1992. "Global versus country-specific productivity shocks and the current account," Working Papers in Applied Economic Theory 92-06, Federal Reserve Bank of San Francisco.
- Reuven Glick & Kenneth Rogoff, 1993. "Global Versus Country-Specific Productivity Shocks and the Current Acocount," Boston University - Institute for Economic Development 31, Boston University, Institute for Economic Development.
- Reuven Glick & Kenneth Rogoff, 1992. "Global Versus Country-Specific Productivity Shocks and the Current Account," NBER Working Papers 4140, National Bureau of Economic Research, Inc.
- Reuven Glick & Kenneth S. Rogoff, 1993. "Global versus country-specific productivity shocks and the current account," International Finance Discussion Papers 443, Board of Governors of the Federal Reserve System (U.S.).
- Serven, Luis, 2002. "Real exchange rate uncertainty and private investment in developing countries," Policy Research Working Paper Series 2823, The World Bank.
- Florian Pelgrin & Sebastian Schich, 2004. "National Saving-Investment Dynamics and International Capital Mobility," Staff Working Papers 04-14, Bank of Canada.
- Argimon, Isabel & Roldan, JoseMaria, 1994. "Saving, investment and international capital mobility in EC countries," European Economic Review, Elsevier, vol. 38(1), pages 59-67, January.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bcr:wpaper:200603. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Grillo)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.