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The Feldstein-Horioka Puzzle: a Panel SmoothTransition Regression Approach

  • 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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Date of creation: 03 Aug 2007
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Handle: RePEc:hal:wpaper:halshs-00156688
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  6. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
  7. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  8. González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics.
  9. Jansen, W. Jos, 2000. "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 507-511, August.
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  11. 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.
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  14. 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 169-88, April.
  15. Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
  16. van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000. "Smooth transition autoregressive models - A survey of recent developments," Econometric Institute Research Papers EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  17. Martin Feldstein & Philippe Bacchetta, 1989. "National Saving and International Investment," NBER Working Papers 3164, National Bureau of Economic Research, Inc.
  18. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
  19. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
  20. 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.
  21. 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.
  22. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-27, May.
  23. Tesar, L.L., 1988. "Savings, Investment And International Capital Flows," Papers 64, Brookings Institution - Working Papers.
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  25. Alan M. Taylor, 1994. "Domestic Saving and International Capital Flows Reconsidered," NBER Working Papers 4892, National Bureau of Economic Research, Inc.
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