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FH Puzzle in the Eurozone: A time-varying analysis Preliminary Draft

Mariam Camarero (), Juan Sapena and Cecilio Tamarit
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Juan Sapena: Catholic University of Valencia, Faculty of Economics and Business. 34 Calle Corona, Valencia, Spain

No 1813, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: The aim of this paper is to reexamine the Feldstein-Horioka puzzle in a dynamic framework. We estimate a time-varying saving-investment relationship for a group of 17 countries panel, paying special attention to Eurozone members but including some relevant OECD countries as well for the period 1970-2016. The main advantage of our empirical approach is that it captures the dynamics of the FH coe_cient, highly consistent with increased _nancial integration. Global risk and country size are relevant elements to unpuzzle the savings-investment correlation. The inclusion of time-varying estimates reveal certain heterogeneity among EMU countries on the way and the circumstances under which their domestic investment would be constrained by savings retention.

Keywords: Feldstein-Horioka puzzle; panel unit root tests; multiple structural breaks; Kalman Filter; Time varying parameters (search for similar items in EconPapers)
JEL-codes: C23 F32 F36 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-eec, nep-ets and nep-opm
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