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Savings and Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?

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  • Caroline Schmidt

Abstract

In this paper, it is argued that the observed high positive correlation be tween national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical findings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results obtained support the idea that shocks to monetary policy might contribute to the explanation of the Feldstein-Horioka puzzle.

Suggested Citation

  • Caroline Schmidt, 2006. "Savings and Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?," KOF Working papers 06-144, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:06-144
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    File URL: http://dx.doi.org/10.3929/ethz-a-005277762
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    Keywords

    Savings Investment Correlations; Monetary Policy Shocks; Feldstein-Horioka Puzzle; Local-currency pricing;

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