Investment-Saving Comovement under Endogenous Fiscal Policy

Daniel Levy ()

International Finance from University Library of Munich, Germany

Abstract: I expand Feldstein’s (1983) model by including flexible exchange rate and by introducing endogenous fiscal policy. Using this model, I demonstrate how a positive investment-saving correlation can arise in a world with endogenous fiscal policy. I show that this correlation does not depend on capital mobility and therefore is compatible with any degree of capital mobility. This implies that the observed investment- saving comovement is not necessarily due to imperfect capital mobility. The model has a testable implication: it predicts a lack of Granger causality from private saving to private investment. Empirical examination of this prediction indicates that U.S. time series data is compatible with the hypothesis of endogenous fiscal policy during a flexible exchange rate period, but not during a fixed exchange rate period.

Keywords: Feldstein-Horioka Puzzle; Investment; Saving; Capital Mobility; Endogenous Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 F41 H39 (search for similar items in EconPapers)
Date: 2005-05-15
New Economics Papers: this item is included in nep-mac
Note: Type of Document - pdf
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0505/0505008.pdf (application/pdf)

Related works:
Journal Article: Investment-saving comovement under endogenous fiscal policy (1995)
Journal Article: Investment-Saving Comovement under Endogenous Fiscal Policy (1995)
Working Paper: Investment-saving comovement under endogenous fiscal policy (1995)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0505008

Access Statistics for this paper

More papers in International Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).