Menu Expand



Kapopoulos, P., Paleologos, J. The Saving Retention Coefficient After the Advent of Euro. Credit and Capital Markets – Kredit und Kapital, 37(4), 465-478.
Kapopoulos, Panayotis and Paleologos, John "The Saving Retention Coefficient After the Advent of Euro" Credit and Capital Markets – Kredit und Kapital 37.4, 2004, 465-478.
Kapopoulos, Panayotis/Paleologos, John (2004): The Saving Retention Coefficient After the Advent of Euro, in: Credit and Capital Markets – Kredit und Kapital, vol. 37, iss. 4, 465-478, [online]


The Saving Retention Coefficient After the Advent of Euro

Kapopoulos, Panayotis | Paleologos, John

Credit and Capital Markets – Kredit und Kapital, Vol. 37 (2004), Iss. 4 : pp. 465–478

Additional Information

Article Details

Author Details

Panayotis Kapopoulos, Athens

John Paleologos, Piraeus


  1. Als, G. (1988): The nightmare of economic accounts in a small country with a large international banking sector, Review of Income and Wealth, 34, 101-110.  Google Scholar
  2. Amirkhalkhali, S./Dar, A. (1993): Testing for Capital Mobility: A Random Coefficients Approach, Empirical Economics, 18, 523-541.  Google Scholar
  3. Backus, D./Kehoe, P./ Kydland, F. (1992): International real business cycles, Journal of Political Economy, 100, 745-775.  Google Scholar
  4. Bagnai, A./Manzocchi, S. (1996): Unit root tests of capital mobility in the less developed countries, Weltwirtschaftliches Archiv, 544-557.  Google Scholar
  5. Baxter, M./Crueini, M. (1993): Explaining saving-investment correlations, American Economic Review, 83, 416-436.  Google Scholar
  6. Bayoumi, T./Rose, A. (1993): Domestic savings and intra-national capital flows, European Economic Review, 37, 1197-1202.  Google Scholar
  7. Blanchard, O./Giavazzi, F. (2002): Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?, Brookings Papers on Economic Activity, Issue 2, 147-186.  Google Scholar
  8. Cabral, I./Dierick, F./Vesala, J. (2002): Banking Integration in the Euro Area, Occasional Paper Series, European Central Bank, December.  Google Scholar
  9. Caprio, G./Howard, D. (1984): Domestic saving, current account and international capital mobility, in International Finance Discussion Papers 244, Board of Governors of the Federal reserve System, Washington DC.  Google Scholar
  10. Coakley, J./Kulasi, F. (1997): Cointegration of long span saving and investment, Economics Letters, 54, 1997, 1-6.  Google Scholar
  11. Coakley, J./Kulasi, F./Smith, R. (1996): Current account solvency and the saving investment puzzle, Economic Journal, 106, 620-627.  Google Scholar
  12. Coiteux, M./ Oliver, S. (2000): The saving retention coefficient in the long run and in the short run: evidence from panel data, Journal of International Money and Finance, 19, 535-548.  Google Scholar
  13. Corbin, A. (2001): Country specific effect in the Feldstein/Horioka paradox: a panel data analysis, Economics Letters, 72, 297-302.  Google Scholar
  14. Danthine, J./Thadden, E. von/Giavazzi, F. (2000): European Financial Markets after the EMU: A First Assessment, CEPR Discussion Paper, no. 2413, March.  Google Scholar
  15. Deckle, R. (1996): Saving-investment associations and capital mobility: on the Japanese regional data, Journal of International Economics, 41, 53-72.  Google Scholar
  16. Demetriades, P./Hussain, K. (1996): Does financial development cause economic growth? time series evidence from 16 countries, Journal of Development Economics, 51, 387-411.  Google Scholar
  17. Dooley, M./ Fernandez-Arias, E./Kletzer, K. (1996): Is debt crisis history? Recent Private Capi- tal Inflows to Developing Countries, World Bank Economic Review, 10, 27-50.  Google Scholar
  18. Dooley, M./Frankel, J./Mathieson, D. (1987): International capital mobility: what do savings-investments correlations tell us?, IMF Staff Papers, 34, 5-30.  Google Scholar
  19. Feldstein, M. (1995): Too little, not too much, The Economist, June 24, 72-73.  Google Scholar
  20. Feldstein, M./Horioka, C. (1980): Domestic saving and international capital flows, Economic Journal, 90, 314-329.  Google Scholar
  21. Fieleke, N. (1982): National Saving and International Investment, in Saving Government Policy, Federal reserve Bank of Boston Conference Series, no.  Google Scholar
  22. Finn, M. (1990): On savings and investment dynamics in a small open economy, Journal of International Economics, 29, 1-21.  Google Scholar
  23. Frankel, J. (1992): Measuring internatioanl capital mobility: a review, American Economic Review, Papers and Proccedings, 82, 197-202.  Google Scholar
  24. Fratzscher, M. (2001): Financial Market Integration in Europe: On the Effects of EMU on stock markets, Working Paper Series, European Central Bank, March.  Google Scholar
  25. Galati, G./Tsatsaronis, K. (2001): The Impact of the Euro on Europe’s Financial Markets, Working Paper, no. 100, Bank of International Settlements.  Google Scholar
  26. Golub, S. (1990): International capital mobility: net versus gross stocks and flows, Journal of International Money and Finance, 9, 424-439.  Google Scholar
  27. Gros, D./Lanoo, K. (2000): The Euro Capital Market, Wiley, London.  Google Scholar
  28. Gundlach, E./Sinn, S. (1992): Unit root tests of the current account balance: implications for international capital mobility, Applied Economics, 24, 617-625.  Google Scholar
  29. Ho, T. W. (2003): The saving retention coefficient and country size: The Feldstein-Horioka puzzle reconsidered, Journal of Macroeconomics, 25, 387-396.  Google Scholar
  30. Hossain, A./Chowdhury, A. (1998): Open Economy Macroeconomics for Developing Countries, Edward Elgar Publishing Limited.  Google Scholar
  31. Hussein, K. (1998): International capital mobility in OECD countries: The Feldstein-Horioka puzzle revisited, Economics Letters, 59, 237-242.  Google Scholar
  32. Jansen, W. (1997): Can the intertemporal budget constraint explain the Feldstein-Horioka puzzle?, Economics Letters, 56, 77-83.  Google Scholar
  33. Jansen, W. (1998): Interpreting saving-investment correlations, Open Economies Review, 9, 205-217.  Google Scholar
  34. Kim, S. H. (2001): The saving-investment correlation puzzle is still a puzzle, Journal of International Money and Finance, 20, 1017-1034.  Google Scholar
  35. Krol, R. (1996): International capital mobility: evidence from panel data, Journal of International Money and Finance, 15, 467-474.  Google Scholar
  36. Moosa, I. (1996): A note on capital mobility, Southern Economic Journal, 63, 248-254.  Google Scholar
  37. Moosa, I. (1997): Resolving the Feldstein-Horioka puzzle, Economia Internazionale, vol. L, 440-457.  Google Scholar
  38. Murpfy, R. (1984): Capital mobility and the relationship between saving and investment in OECD countries, Journal of International Money and Finance, 3, 327-342.  Google Scholar
  39. Obstfeld, M. (1986): Capital mobility in the world economy:theory and measurement, Carnegie-Rochester Conference Series in Public Policy, 24, 55-104.  Google Scholar
  40. Obstfeld, M. (1993): International capital mobility in the 1990s, NBER Working Paper no. 4534, November.  Google Scholar
  41. Sachsida, A./Caetano, M. R. (2000): The Feldstein-Horioka puzzle revisited, Economics Letters, 68, 85-88.  Google Scholar
  42. Santillan, J./Bayle, M./ Thygesen, C. (2000): The impact of Euro on money and bond markets, Occasional Paper Series, European Central Bank, July.  Google Scholar
  43. Sinn, S. (1992): Saving-investment correlations and capital mobility: on the evidence from annual data, Economic Journal, 102, 1162-1170.  Google Scholar
  44. Summers, L. (1988): Tax Policy and International Competitiveness, in International Aspects of Fiscal Policy, edited by J. Frenkel, Chicago University Press, 349-386.  Google Scholar
  45. Tesar, L. (1991): Savings, Investment and International Capital Flows, Journal of International Economics, 31, 55-78.  Google Scholar
  46. Tobin, J. (1983): Domestic Saving and International Capital Movements in the long run and the short run, Comment on M. Feldstein, European Economic Review, 21, 153-156.  Google Scholar
  47. White, H. (1980): A heteroskedasticity consistent covariance matrix estimator and a direct test for heteroskedasticity, Econometrica, 48, 817-838.  Google Scholar
  48. Yamori, N. (1995): The relationship between domestic savings and investment: The Feldstein-Horioka test using Japanese regional data, Economics Letters, 48, 361-366.  Google Scholar


The Saving Retention Coefficient After the Advent of Euro

The introduction of the euro marks a milestone in the process of European financial market integration. Capital mobility is helpful to cope with the loss of fiscal adjustment instruments in EMU. High capital mobility in the sense of Feldstein and Horioka can limit the negative consequences of shocks affecting the saving capacity of an economy in the Euro zone. In other words, if capital mobility is high, a country’s growth prospect will not be constrained by its ability to save. This paper empirically examines the magnitude of the saving retention coefficient in a setting of an institutionally targeted near-perfect capital mobility and capital market integration, Euro Area countries. We also try to clarify whether the adoption of the euro and the previously completed financial liberalisation has changed the slope of saving-investment association. For this purpose, the Feldstein/ Horioka approach is extended and updated. We find that the savings retention coefficient is relatively low for the whole EMS period but significantly different from zero. Also, the empirical findings support a new puzzle. Domestic saving and investment within EMU is less correlated than they were before the advent of the euro. This result does not support the Frankel’s (1992) proposition that the correlation observed between savings and investment is partly due to a non-zero currency premium. However, this result could be considered as preliminary, given the short sample size after the advent of euro. (F32, E22, G15)