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The Feldstein-Horioka Puzzle: a Panel SmoothTransition Regression Approach

Listed author(s):
  • Julien Fouquau

    (LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans)

  • Christophe Hurlin

    ()

    (LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans)

  • Isabelle Rabaud

    (LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans)

This paper proposes an original framework to determine the relative influence of fivefactors on the Feldstein and Horioka result of OECD countries with a strong saving-investment association. Based on panel threshold regression models, we establishcountry-specific and time-specific saving retention coefficients for 24 OECD coun-tries over the period 1960-2000. These coefficients are assumed to change smoothly,as a function of five threshold variables, considered as the most important in theliterature devoted to the Feldstein and Horioka puzzle. The results show that; de-gree of openness, country size and current account to GDP ratios have the greatestinfluence on the investment-saving relationship.

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Paper provided by HAL in its series Working Papers with number halshs-00156688.

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Date of creation: 03 Aug 2007
Handle: RePEc:hal:wpaper:halshs-00156688
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00156688v2
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  1. 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.
  2. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
  3. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  4. Alan M. Taylor, 1994. "Domestic Saving and International Capital Flows Reconsidered," NBER Working Papers 4892, National Bureau of Economic Research, Inc.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
  7. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
  8. Corbin, Annie, 2001. "Country specific effect in the Feldstein-Horioka paradox: a panel data analysis," Economics Letters, Elsevier, vol. 72(3), pages 297-302, September.
  9. International Monetary Fund, 1999. "Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions," IMF Working Papers 99/128, International Monetary Fund.
  10. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects in the Public Capital Productivity: an International Panel Smooth Transition Approach," Post-Print halshs-00257483, HAL.
  11. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
  12. Ho, Tsung-Wu, 2003. "The saving-retention coefficient and country-size: The Feldstein-Horioka puzzle reconsidered," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 387-396, September.
  13. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 169-188, April.
  14. W. Jos Jansen, 2003. "International Capital Mobility: Evidence from Panel Data," International Finance 0310003, EconWPA.
  15. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3-3.
  16. Coiteux, Martin & Olivier, Simon, 2000. "The saving retention coefficient in the long run and in the short run: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 535-548, August.
  17. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  18. Baxter, M. & Crucini, M.J., 1990. "Explaining Saving/Investment Correlation," RCER Working Papers 224, University of Rochester - Center for Economic Research (RCER).
  19. Tesar, L.L., 1988. "Savings, Investment And International Capital Flows," RCER Working Papers 154, University of Rochester - Center for Economic Research (RCER).
  20. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
  21. 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.
  22. Krol, Robert, 1996. "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 467-474, June.
  23. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-627, May.
  24. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
  25. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
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