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Public and private saving and investment

  • Eric van Wincoop
  • Jane Marrinan

We decompose aggregate saving and investment into its public and private components and then document a variety of ``stylized facts'' associated with saving and investment rates for a sample of 15 countries over the period 1975--1989. In order to see whether these empirical relationships are consistent with a world of perfect capital mobility we develop a multi--country model with free trade in a riskfree bond and calibrate it to the fifteen OECD countries. We pay special attential to modeling the fiscal policy rules. The model performs remarkably well in accounting for a wide variety of time series relationships. Nonetheless the model is not able to capture the cross sectional aspect of the data. In particular, the model cannot account for both the large cross country correlation between aggregate saving and investment rates and the very negative cross country relationship between the public and private saving minus investment gaps.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/172.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 172.

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Date of creation: Jun 1996
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Handle: RePEc:upf:upfgen:172
Contact details of provider: Web page: http://www.econ.upf.edu/

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  4. Morris Goldstein & Michael Mussa, 1993. "The Integration of World Capital Markets," IMF Working Papers 93/95, International Monetary Fund.
  5. Baxter, M. & Crucini, M.J., 1990. "Explaining Saving/Investment Correlation," RCER Working Papers 224, University of Rochester - Center for Economic Research (RCER).
  6. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
  7. Baxter, M., 1992. "Financial Market Linkages and the International Transmission of Fiscal Policy," RCER Working Papers 336, University of Rochester - Center for Economic Research (RCER).
  8. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  9. Martin Feldstein, 1982. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Working Papers 0947, National Bureau of Economic Research, Inc.
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  12. Baxter, Marianne & Crucini, Mario J, 1995. "Business Cycles and the Asset Structure of Foreign Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 821-54, November.
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  15. Tobin, James, 1983. "'Domestic saving and international capital movements in the long run and the short run' by M. Feldstein," European Economic Review, Elsevier, vol. 21(1-2), pages 153-156.
  16. Buiter, Willem H., 1984. "Fiscal Policy in Open, Interdependent Economies," CEPR Discussion Papers 28, C.E.P.R. Discussion Papers.
  17. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
  18. Lawrence H. Summers, 1986. "Tax Policy and International Competitiveness," NBER Working Papers 2007, National Bureau of Economic Research, Inc.
  19. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
  20. 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.
  21. 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.
  22. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  23. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
  24. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 411-434, December.
  25. 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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