50 years of capital mobility in the Eurozone: breaking the Feldstein-Horioka Puzzle
Mariam Camarero (),
Alejandro Muñoz and
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Alejandro Muñoz: University of València, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, (Spain) de Marcenado, 27, 28015, Madrid (Spain)
No 2102, Working Papers from Department of Applied Economics II, Universidad de Valencia
This paper assesses capital mobility for the Eurozone countries by studying the long-run relationship between domestic investment and savings for the period 1970-2019. Our main goal is to analyze the impact of economic events on capital mobility during this period. We apply the cointegration methodology in a setting that allows us to identify endogenous breaks in the long-run saving-investment relationship. Specifically, the breaks coincide with relevant economic events. We find a downward trend in the saving-investment retention since the 70s for the so-called “core countries”, whereas this trend is not so clear in the peripheral, where the financial and sovereign crises have had a more substantial impact. Our analysis captures other economic events: the Exchange Rate Mechanism (ERM) crisis, the German reunification, the European financial assistance program, and the post-crisis period. Our results also indicate that the original euro design had some caveats that remain unsolved.
Keywords: Capital mobility; Feldstein-Horioka puzzle; Multiple Structural Breaks; Cointegration, unit roots (search for similar items in EconPapers)
JEL-codes: F36 F45 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-his and nep-opm
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Journal Article: 50 Years of Capital Mobility in the Eurozone: Breaking the Feldstein-Horioka Puzzle (2021)
Working Paper: 50 years of capital mobility in the Eurozone: breaking the Feldstein-Horioka Puzzle (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eec:wpaper:2102
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