Revisiting the Feldstein-Horioka Puzzle: An institutional sector view

Ricardo Bebczuk () and Klaus Schmidt-Hebbel

Económica, 2010, vol. LVI, 69-104

Abstract: Working on a sample of OECD countries spanning the period 1970-2003, this paper contributes to the Feldstein-Horioka literature by making three main innovations: (1) It estimates, for the first time, regressions at the institutional sector level (households, corporations, and government); (2) It explores the asymmetry between current account deficits and surpluses; and (3) It uses advanced panel data techniques to deal with endogeneity and to distinguish long- and short-run effects. The conclusions of the paper are that: (i) The national Feldstein-Horioka coefficient is in the vicinity of 0.5, but sectoral coefficients are much lower, a puzzling result possibly explained by endogenous intersectoral saving and investment links; (iii) The FH coefficients are higher in deficit than in surplus years; and (iv) The long-run relationship is in all cases below 1, which raises the question as to whether the intertemporal budget constraint should be interpreted.

Keywords: Felstein-Horioka Puzzle; saving; investment; institutional sectors (search for similar items in EconPapers)
JEL-codes: F16 F32 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Revisiting the Feldstein-Horioka Puzzle: An institutional sector view (2010)
Working Paper: Revisiting the Feldstein-Horioka Puzzle: An Institutional Sector View (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:lap:journl:571

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