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Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus

Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus
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Year:    2022

Author:    Chu, Kam Hon

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 4 : pp. 489–522

Abstract

Theoretically based on national income accounting identities, the Feldstein-Horioka hypothesis downplays, if not totally ignores, the influence of monetary factors on international capital mobility. Recognizing the historical development of economics and the institutional arrangements of the exchange rate regime, this study extends the theoretical framework by integrating the balance of payments and national income accounting equations to show that domestic investment is related to not only domestic saving and international capital flows but also changes in the domestic money supply and credit creation. Panel data regression results for the original Feldstein-Horioka sample – 20 OECD countries over the years 1960 – 1974 – empirically support the theory. In contrast to the Feldstein-Horioka findings, a lower saving-investment coefficient is found, suggesting higher international capital mobility though still with some degree of home bias. Overall, this study illustrates the importance of money, history of economics and economic institutions in understanding and resolving the Feldstein-Horioka puzzle.

Journal Article Details

Publisher Name:    Global Science Press

Language:    English

DOI:    https://doi.org/10.3790/ccm.55.4.489

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 4 : pp. 489–522

Published online:    2022-10

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    34

Keywords:    Feldstein-Horioka Puzzle International Capital Mobility Investment-Saving Correlation Monetary Approach to the Balance of Payments Panel Data Econometrics E2 E5 F3 F4

Author Details

Chu, Kam Hon

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Section Title Page Action Price
Kam Hon Chu: Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus 489
Abstract 489
I. Introduction 489
II. The Theoretical Framework 493
III. Empirical Methods and Results 499
1. Model Specification and Panel Unit Root Tests 499
2. Stationary Panel Regression Results 504
3. Panel Cointegration Tests and Estimation 511
IV. Conclusion 515
References 517
Data appendix 521
1. Data sources: 521
2. Variable construction 521
3. Countries included in the samples 522