50 years of capital mobility in the Eurozone: breaking the Feldstein-Horioka Puzzle

Mariam Camarero, Alejandro Munoz () and Cecilio Tamarit

No 2021.04, Working Papers from International Network for Economic Research - INFER

Abstract: 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: F (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021
New Economics Papers: this item is included in nep-eec, nep-his and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://infer-research.eu/wp-content/uploads/2021/05/WP2021.04.pdf First version, 2021 (application/pdf)

Related works:
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)
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:inf:wpaper:2021.04

Access Statistics for this paper

More papers in Working Papers from International Network for Economic Research - INFER Contact information at EDIRC.
Bibliographic data for series maintained by Pedro Cerqueira ( this e-mail address is bad, please contact ).