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The Global Side of the Investments-Savings Puzzle

  • Joseph P. Byrne
  • Giorgio Fazio
  • Norbert Fiess

In this paper we re-examine the long standing and puzzling correlation between national savings and investment in industrial countries. We apply an econometric methodology that allows us to separate idiosyncratic correlation at the country level from correlation at the global level. In a major break with the existing literature, we find no evidence of a long run relationship in the idiosyncratic components of savings and investment. We also find that the global components in savings and investments commove, indicating that they react to shocks of a global nature.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2008_14.

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Date of creation: May 2008
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Handle: RePEc:gla:glaewp:2008_14
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  13. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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