The Feldstein-Horioka Fact

Domenico Giannone and Michele Lenza

No 4610, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper shows that general equilibrium effects can partly rationalize the high correlation between saving and investment observed in OECD countries. We introduce a novel factor augmented panel regression to control for general equilibrium effects where global shocks are allowed to affect each country with specific magnitude and lag structure. We show that the homogeneity restriction on the propagation of global shocks across countries is rejected by the data and biases the saving-retention coefficient estimated in previous studies. By relaxing this assumption, the saving-retention coefficient remains high in the 70s but decreases considerably over time becoming very small in the last two decades. This finding is explained by the increased capital mobility in OECD countries.

Keywords: Saving-correlation; Capital mobility; International co-movement; Dynamic factor model (search for similar items in EconPapers)
JEL-codes: C23 F32 F41 (search for similar items in EconPapers)
Date: 2004-09
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Related works:
Chapter: The Feldstein-Horioka Fact (2010)
Journal Article: The Feldstein-Horioka Fact (2010)
Working Paper: The Feldstein-Horioka Fact (2009)
Working Paper: The Feldstein-Horioka fact (2009)
Working Paper: The Feldstein-Horioka fact (2008)
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