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FH Puzzle in the Eurozone: A time-varying analysis Preliminary Draft

Author

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  • Mariam Camarero

    (Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain)

  • Juan Sapena

    (Catholic University of Valencia, Faculty of Economics and Business. 34 Calle Corona, Valencia, Spain)

  • Cecilio Tamarit

    (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II. PO Box 22.006 - E-46071 Valencia, Spain)

Abstract

The aim of this paper is to reexamine the Feldstein-Horioka puzzle in a dynamic framework. We estimate a time-varying saving-investment relationship for a group of 17 countries panel, paying special attention to Eurozone members but including some relevant OECD countries as well for the period 1970-2016. The main advantage of our empirical approach is that it captures the dynamics of the FH coe_cient, highly consistent with increased _nancial integration. Global risk and country size are relevant elements to unpuzzle the savings-investment correlation. The inclusion of time-varying estimates reveal certain heterogeneity among EMU countries on the way and the circumstances under which their domestic investment would be constrained by savings retention.

Suggested Citation

  • Mariam Camarero & Juan Sapena & Cecilio Tamarit, 2018. "FH Puzzle in the Eurozone: A time-varying analysis Preliminary Draft," Working Papers 1813, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1813
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    Keywords

    Feldstein-Horioka puzzle; panel unit root tests; multiple structural breaks; Kalman Filter; Time varying parameters;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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