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Public and Private Saving and Investment

  • Van Wincoop, E.
  • Marrinan, J.

Several have shown that models with perfect international capital mobility can generate high correlations between aggregate savings and investment, as observed in the data. In this paper we decompose aggregate saving and investment into their two component parts, private and public. This leads to some striking observations. In almost all of the OECD countries we investigate during the 1975-1989 period, the private sector saving investment gap closely mirrors the government sector saving investment gap. Moreover, unlike the large aggregate saving investment correlations, private sectors saving investment correlations are on average close to zero. The paper investigates these and other moments associated with the public and private saving and investment in the context of models with perfect capital mobility. The paper devotes significant attention to modeling the government sector. Rules for taxation, government consumption and investment are specified, estimated, and fed into the model simulations. We find that while models are fiscal, technology and interest rate shocks are able to generate negative correlations between the public and private sector saving investment gaps, these correlations still fall significantly short of the very negative correlations observed in the data. Moreover, The models are not able to generate correlations between private saving and investment that are much lower than those between total saving and investment.

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Paper provided by Stockholm - International Economic Studies in its series Papers with number 546.

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Length: 29 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:stocin:546
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  1. Kollmann, R., 1993. "Fiscal Policy, Technology Shcks and the US Trade Balance Deficit," Cahiers de recherche 9313, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  3. Roubini, N., 1989. "Current Account And Budget Deficits In An Intertemporal Model Of Consumption And Taxation Smoothing. A Solution To The "Feldstein-Horioka" Puzzel," Papers 569, Yale - Economic Growth Center.
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  5. Gary D. Hansen & Randall Wright, 1992. "The labor market in real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-12.
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  8. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
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  12. Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 327-342, December.
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  14. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, in: National Saving and Economic Performance, pages 201-226 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, vol. 63(251), pages 495-512, August.
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  19. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
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  21. Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 171-201, March.
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