The Feldstein-Horioka Puzzle and Capital Mobility: A Review

Jerry Coakley, Farida Kulasi and Ronald Smith

International Journal of Finance & Economics, 1998, vol. 3, issue 2, 169-88

Abstract: This paper reviews how economists responded to the Feldstein-Horioka (FH) view that a high saving-investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open-economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross-section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving-investment comovements are informative about capital mobility is still unresolved although the skeptics appear to be in the ascendancy. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Date: 1998
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