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

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  4. Vol. 55, Issue 4
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Chu, K. Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus. Credit and Capital Markets – Kredit und Kapital, 55(4), 489-522. https://doi.org/10.3790/ccm.55.4.489
Chu, Kam Hon "Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus" Credit and Capital Markets – Kredit und Kapital 55.4, 2022, 489-522. https://doi.org/10.3790/ccm.55.4.489
Chu, Kam Hon (2022): Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 4, 489-522, [online] https://doi.org/10.3790/ccm.55.4.489
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Taking Money Seriously and Putting it Back into the Feldstein-Horioka Saving-Investment Nexus

Chu, Kam Hon

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

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Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.4.489
Language
English
Pages
34
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Author Details

Professor Kam Hon Chu, Department of Economics, Memorial University of Newfoundland, St. John’s, Newfoundland & Labrador, CANADA A1C 5S7, Tel: (709) 864-8102, Fax: (709) 864-2094.

References

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  6. Breitung, J. (2000): “The Local Power of Some Unit Root Tests for Panel Data.” Advances in Econometrics 15: 161–77.  Google Scholar
  7. Camarero, M./Sapena, M./Tamarit, C. (2020): “Modelling Time-Varying Parameters in Panel Data State-Space Framework: An Application to The Feldstein-Horioka Puzzle.” Computational Economics 56: 87–114.  Google Scholar
  8. Carr, J./Darby, M. (1981): “The Role of Money Supply Shocks in the Short-Run Demand for Money.” Journal of Monetary Economics 8: 183–200.  Google Scholar
  9. Carvalho, D. (2018): “Financial Integration and the Great Leveraging.” International Journal of Finance and Economics 24: 54–79.  Google Scholar
  10. Chan, K./Dang, V. Q. T./Lai, J. T. (2018): “Capital Market Integration in ASEAN: A Non-Stationary Panel Data Analysis.” North American Journal of Economics and Finance 46: 249–60.  Google Scholar
  11. Choi, I. (2001): “Unit Root Tests for Panel Data.” Journal of International Money and Finance 20: 249–72.  Google Scholar
  12. Chu, K. H. (2012): “The Feldstein-Horioka Puzzle and Spurious Ratio Correlation.” Journal of International Money and Finance 31: 292–309.  Google Scholar
  13. Chu, K. H. (2017): “The Feldstein-Horioka Puzzle, the Frankel-Dooley-Mathieson Puzzle, Spurious Ratio Correlation and Measurement Errors.” Economics Bulletin 37: 2004–19.  Google Scholar
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  25. Hadri, K. (2000): “Testing for Stationarity in Heterogeneous Panel Data.” Econometrics Journal 3: 148–61.  Google Scholar
  26. Hamori, S. (2007): “International Capital Flows and the Frankel-Dooley-Mathieson Puzzle” Economics Bulletin 15, 1–12.  Google Scholar
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  29. Im, K. S./Pesaran, M. H./Shin, Y. (2003): “Testing for Unit Roots in Heterogeneous Panels.” Journal of Econometrics 115: 53–74.  Google Scholar
  30. Jansen, W. J. (2000): International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance 19: 509–11.  Google Scholar
  31. Johnson, H. G. (1958): “The Balance of Payments.” Pakistan Economic Journal, reprinted in H. G. Johnson (1962): Money, Trade and Economic Growth. London: Unwin University Books.  Google Scholar
  32. Johnson, H. G. (1972): “The Monetary Approach to Banlance-of-Payments Theory.” Journal of Financial and Quantitative Analysis 7: 1555–72.  Google Scholar
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  34. Kao, C. (1999): “Spurious Regression and Residual-based Tests for Cointegration in Panel Data.” Journal of Econometrics 90: 1–44.  Google Scholar
  35. Kao, C./Chiang, M. (2001): “On the Estimation and Inference of a Cointegrated Regression in Panel Data.” Advances in Econometrics 15: 179–222.  Google Scholar
  36. Karlsson, S./Löthgren, M. (2006): “On the Power and Interpretation of Panel Unit Root Tests.” Economics Letters 66: 249–55.  Google Scholar
  37. Kim, S. H. (2001): “The Saving-Investment Correlation Puzzle Is Still a Puzzle.” Journal of International Money and Finance 20: 255–72.  Google Scholar
  38. Kouri, P. J. K. (1975): “The Hypothesis of Offsetting Capital Flows: A Case Study of Germany.” Journal of Monetary Economics 1: 21–39.  Google Scholar
  39. Kumar, S. (2015): “Regional Integration, Capital Mobility and Financial Intermediation Revisited: Application of General to Specific Method in Panel Data.” Journal of International Financial Markets, Institutions and Money 36: 1–17.  Google Scholar
  40. Kumar, S./Rao, B. B. (2011): “A Time-Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries.” World Economy 34: 473–85.  Google Scholar
  41. Kumar, S./Sen, R./Srivastava, S. (2014): “Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Regional Economic Communities in Africa.” Journal of International Financial Markets, Institutions and Money 29: 33–50.  Google Scholar
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  92. Chu, K. H. (2017): “The Feldstein-Horioka Puzzle, the Frankel-Dooley-Mathieson Puzzle, Spurious Ratio Correlation and Measurement Errors.” Economics Bulletin 37: 2004–19.  Google Scholar
  93. Coakley, J./Kulasi, F./Smith, R. (1998): “The Feldstein-Horioka Puzzle and Capital Mobility: A Review.” International Journal of Finance and Economics 3: 169–88.  Google Scholar
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  95. Dellas, H./Tavlas, G. S. (2018): “Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules.” Cato Journal 38: 361–77.  Google Scholar
  96. Dooley, M. P./Frankel, J./Mathieson, D. J. (1987): “International Capital Mobility: What Do Saving-Investment Correlations Tell Us?” International Monetary Fund Staff Papers 34: 503–30.  Google Scholar
  97. Drakos, A.A./Kouretas, G. P./Stavroyiannis, S./Zarangas, L. (2017): “Is the Feldstein-Horioka Puzzle Still with Us? National Saving-Investment Dynamics and International Capital Mobility: A Panel Data Analysis across EU Member Countries.” Journal of International Markets, Institutions and Money 47: 76–88.  Google Scholar
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  99. Eyuboglu, S./Uzar, U. (2020): “Is the Feldstein-Horioka Puzzle Valid in Lucky Seven Countries?” Journal of International Trade and Economic Development 29: 399–419.  Google Scholar
  100. Feldstein, M./Horioka, C. (1980): “Domestic Saving and International Capital Flows.” Economic Journal 90: 314–29.  Google Scholar
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  103. Ginama, I./Hayakawa, K./Kanmei, T. (2018): “Examining the Feldstein-Horioka Puzzle Using Common Factors Panel and Interval Estimation.” Japan and the World Economy 48: 11–21.  Google Scholar
  104. Hadri, K. (2000): “Testing for Stationarity in Heterogeneous Panel Data.” Econometrics Journal 3: 148–61.  Google Scholar
  105. Hamori, S. (2007): “International Capital Flows and the Frankel-Dooley-Mathieson Puzzle” Economics Bulletin 15, 1–12.  Google Scholar
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  120. Kumar, S./Sen, R./Srivastava, S. (2014): “Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Regional Economic Communities in Africa.” Journal of International Financial Markets, Institutions and Money 29: 33–50.  Google Scholar
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  124. Laidler, D. E. (1990): Taking Money Seriously and Other Essays. Cambridge: MIT Press.  Google Scholar
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  126. Levi, M. D. (1996): “Are Capital Markets Internationally Integrated?” pp. 63–86 in Courchene, T. J./Neave, T. H. (eds.): Reforming the Canadian Financial Sector: Canada in Global Perspective. Kingston, Ontario: John Deutsch Institute for the Study of Economic Policy.  Google Scholar
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  128. Maddala, G. S./Wu, S. (1999): “A Comparative Study of Unit Root Tests with Panel Data ad a New Simple Test.” Oxford Bulletin of Economics and Statistics 61: 631–52.  Google Scholar
  129. Mark, N. C./Sul, D. (2003): “Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand.” Oxford Bulletin of Economics and Statistics 65: 655–80.  Google Scholar
  130. McClure, J. H. (1994): “The Feldstein-Horioka Puzzle: the ISLM Model with Optimal Policy.” Open Economies Review 5: 371–82.  Google Scholar
  131. Montiel, P. (1994): “Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates.” World Bank Economic Review 8(3): 311–50.  Google Scholar
  132. Obstfeld, M./Rogoff, K. (1995): “The Intertemporal Approach to the Current Account, in Grossman, G./Rogoff, K. (eds.): Handbook of International Economics, Volume III, Elsevier Science, Amsterdam, 1731–99.  Google Scholar
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  135. Ohlin, B. G. (1937): “Alternative Theories of the Rate of Interest.” Economic Journal 47: 423–7.  Google Scholar
  136. Olayeni, R. O./Tiwan, A. K./Wohar, M. E. (2021): “Fractional Frequency Flexible Fourier Form (FFFFF) for Panel Cointegration Test.” Applied Economics Letters 28: 482–6.  Google Scholar
  137. Pata, U. K. (2018): “The Feldstein-Horioka Puzzle in E7 Countries: Evidence from Panel Cointegration and Asymmetric Causality Analysis.” Journal of International Trade and Economic Development 27: 968–84.  Google Scholar
  138. Patinkin, D. (1965): Money, Interest, and Prices, 2nd edition. New York: Harper and Row.  Google Scholar
  139. Pedroni, P. (1999): “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,” Oxford Bulletin of Economics and Statistics 61: 653–78.  Google Scholar
  140. Pedroni, P. (2000): “Fully Modified OLS for Heterogeneous Panels,” Advances in Econometrics 15: 93–130.  Google Scholar
  141. Pesaran, M. H. (2004): “General Diagnostic Tests fro Cross Section Dependence in Panels.” CESifo Working Paper No. 1229.  Google Scholar
  142. Pesaran, M. H. (2007): “A Simple Panel Unit Root Test in the Presence of Cross Section Dependence.” Journal of Applied Econometrics 22: 265–312.  Google Scholar
  143. Pesaran, M. H. (2015a): Time Series and Panel Data Econometrics. Oxford: Oxford University Press.  Google Scholar
  144. Pesaran, M. H. (2015b): “Testing Weak Cross-Sectional Dependence in Large Samples.” Econometric Reviews 34: 1089–1117.  Google Scholar
  145. Phillips, P. C. B./Moon, H. (1999): “Linear Regression Limit Theory for Nonstationary Panel Data.” Econometrica 67: 1057–111.  Google Scholar
  146. Polak, J. J. (2001): “The Two Monetary Approaches to the Balance of Payments: Keynesians and Johnsonians.” IMF Working Paper WP/01/100. Washington, D.C.: International Monetary Fund.  Google Scholar
  147. Robertson, D. H. (1937): “Alternative Theories in the Rate of Interest.” Economic Journal 47: 423–43.  Google Scholar
  148. Schmidt, C. (2007): “Saving-Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?” Open Economies Review 18: 347–67.  Google Scholar
  149. Singh, T. (2016): “Rhetorics of Saving-Investment Correlations and the International Mobility of Capital: A Survey.” Journal of International Trade and Economic Development 25: 636–690.  Google Scholar
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  188. Jansen, W. J. (2000): International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance 19: 509–11.  Google Scholar
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  191. Jonson, P. D. (1976): “Money, Prices and Output – an Integrative Essay.” Kredit und Kapital (now Credit and Capital Markets) 4: 499–518.  Google Scholar
  192. Kao, C. (1999): “Spurious Regression and Residual-based Tests for Cointegration in Panel Data.” Journal of Econometrics 90: 1–44.  Google Scholar
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  196. Kouri, P. J. K. (1975): “The Hypothesis of Offsetting Capital Flows: A Case Study of Germany.” Journal of Monetary Economics 1: 21–39.  Google Scholar
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  222. Pesaran, M. H. (2015a): Time Series and Panel Data Econometrics. Oxford: Oxford University Press.  Google Scholar
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  224. Phillips, P. C. B./Moon, H. (1999): “Linear Regression Limit Theory for Nonstationary Panel Data.” Econometrica 67: 1057–111.  Google Scholar
  225. Polak, J. J. (2001): “The Two Monetary Approaches to the Balance of Payments: Keynesians and Johnsonians.” IMF Working Paper WP/01/100. Washington, D.C.: International Monetary Fund.  Google Scholar
  226. Robertson, D. H. (1937): “Alternative Theories in the Rate of Interest.” Economic Journal 47: 423–43.  Google Scholar
  227. Schmidt, C. (2007): “Saving-Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?” Open Economies Review 18: 347–67.  Google Scholar
  228. Singh, T. (2016): “Rhetorics of Saving-Investment Correlations and the International Mobility of Capital: A Survey.” Journal of International Trade and Economic Development 25: 636–690.  Google Scholar
  229. Tew, B. (1985): The Evolution of the International Monetary System 1945–85, 3rd edition. London: Hutchinson & Co.  Google Scholar
  230. Thornton, H. (1802[1939]): An Enquiry into the Nature and Effect of the Paper Credit of Great Britain. London: Allen & Unwin.  Google Scholar
  231. Tsiang, S. C. (1966): “Walras’ Law, Say’s Law, and Liquidity Preference in General Equilibrium Analysis.” International Economic Review 7: 329–45.  Google Scholar
  232. Tsiang, S. C. (1977): “The Monetary Theoretic Foundation of the Modern Monetary Approach to the Balance of Payments.” Oxford Economic Papers 29: 319–38.  Google Scholar
  233. Tsiang, S. C. (1988): “The Flow Formulation of the Money Market Equilibrium for an Open Economy and the Determination of the Exchange Rate.” reprinted as Chapter 9 in Kohn, M. (ed.) (1989): Finance Constraints and the Theory of Money: Selected Papers. London: Academic Press.  Google Scholar
  234. Vanhoose, D. D. (2004): “The New Open Economy Macroeconomics: A Critical Appraisal.” Open Economies Review 15: 193–215.  Google Scholar
  235. Wagner, M./Hlouskova, J. (2010): “The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study.” Econometric Reviews 29: 182–223.  Google Scholar
  236. Wicksell, K. (1936): Interest and Prices. London: Macmillan.  Google Scholar
  237. Yilanci, V./Kilci, E. N. (2021): “The Feldstein-Horioka Puzzle for the Next Eleven Countries: A Panel Data Analysis with Fourier Functions.” Journal of International Trade and Economic Development 30: 341–64.  Google Scholar
  238. Apergis, N./Tsoumas, C. (2009): “A Survey of the Feldstein-Horioka Puzzle: What Has Been Done and Where We Stand.” Research in Economics 63: 64–76.  Google Scholar
  239. Artis, M./Lewis, M. (1991): Money in Britain: Monetary Policy, Innovation and Europe. Hertfordshire: Philip Allan.  Google Scholar
  240. Aschheim, J./Hsieh, C. Y. (1969): Macroeconomics: Income and Monetary Theory. Columbus, Ohio: Charles E. Merrill Publishing Co.  Google Scholar
  241. Baltagi, B. H. (2013): Econometric Analysis of Panel Data, 5th Edition. West Sussex, U.K.: John Wiley & Sons Ltd.  Google Scholar
  242. Belloc, M./Gandolfo, G. (2002): “Does the Feldstein-Horioka Puzzle Exist? Theoretical Analysis and Empirical Evidence.” CIDEI Working Paper No. 67.  Google Scholar
  243. Breitung, J. (2000): “The Local Power of Some Unit Root Tests for Panel Data.” Advances in Econometrics 15: 161–77.  Google Scholar
  244. Camarero, M./Sapena, M./Tamarit, C. (2020): “Modelling Time-Varying Parameters in Panel Data State-Space Framework: An Application to The Feldstein-Horioka Puzzle.” Computational Economics 56: 87–114.  Google Scholar
  245. Carr, J./Darby, M. (1981): “The Role of Money Supply Shocks in the Short-Run Demand for Money.” Journal of Monetary Economics 8: 183–200.  Google Scholar
  246. Carvalho, D. (2018): “Financial Integration and the Great Leveraging.” International Journal of Finance and Economics 24: 54–79.  Google Scholar
  247. Chan, K./Dang, V. Q. T./Lai, J. T. (2018): “Capital Market Integration in ASEAN: A Non-Stationary Panel Data Analysis.” North American Journal of Economics and Finance 46: 249–60.  Google Scholar
  248. Choi, I. (2001): “Unit Root Tests for Panel Data.” Journal of International Money and Finance 20: 249–72.  Google Scholar
  249. Chu, K. H. (2012): “The Feldstein-Horioka Puzzle and Spurious Ratio Correlation.” Journal of International Money and Finance 31: 292–309.  Google Scholar
  250. Chu, K. H. (2017): “The Feldstein-Horioka Puzzle, the Frankel-Dooley-Mathieson Puzzle, Spurious Ratio Correlation and Measurement Errors.” Economics Bulletin 37: 2004–19.  Google Scholar
  251. Coakley, J./Kulasi, F./Smith, R. (1998): “The Feldstein-Horioka Puzzle and Capital Mobility: A Review.” International Journal of Finance and Economics 3: 169–88.  Google Scholar
  252. Corbin, A. (2004): “Capital Mobility and Adjustment in the Current Account Imbalances: A Bounds Testing Approach to Cointegration in 12 Countries (1880–2001).” International Journal of Finance and Economics 9: 257–76.  Google Scholar
  253. Dellas, H./Tavlas, G. S. (2018): “Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules.” Cato Journal 38: 361–77.  Google Scholar
  254. Dooley, M. P./Frankel, J./Mathieson, D. J. (1987): “International Capital Mobility: What Do Saving-Investment Correlations Tell Us?” International Monetary Fund Staff Papers 34: 503–30.  Google Scholar
  255. Drakos, A.A./Kouretas, G. P./Stavroyiannis, S./Zarangas, L. (2017): “Is the Feldstein-Horioka Puzzle Still with Us? National Saving-Investment Dynamics and International Capital Mobility: A Panel Data Analysis across EU Member Countries.” Journal of International Markets, Institutions and Money 47: 76–88.  Google Scholar
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  257. Eyuboglu, S./Uzar, U. (2020): “Is the Feldstein-Horioka Puzzle Valid in Lucky Seven Countries?” Journal of International Trade and Economic Development 29: 399–419.  Google Scholar
  258. Feldstein, M./Horioka, C. (1980): “Domestic Saving and International Capital Flows.” Economic Journal 90: 314–29.  Google Scholar
  259. Frenkel, J. A./Johnson, H. G. (eds.) (1976): The Monetary Approach to the Balance of Payments. Allen & Unwin.  Google Scholar
  260. Gandolfo, G. (2001): International Finance and Open-Economy Macroeconomics. Berlin: Springer.  Google Scholar
  261. Ginama, I./Hayakawa, K./Kanmei, T. (2018): “Examining the Feldstein-Horioka Puzzle Using Common Factors Panel and Interval Estimation.” Japan and the World Economy 48: 11–21.  Google Scholar
  262. Hadri, K. (2000): “Testing for Stationarity in Heterogeneous Panel Data.” Econometrics Journal 3: 148–61.  Google Scholar
  263. Hamori, S. (2007): “International Capital Flows and the Frankel-Dooley-Mathieson Puzzle” Economics Bulletin 15, 1–12.  Google Scholar
  264. Hlouskova, J./Wagner, M. (2006): “The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study.” Econometric Reviews 25: 85–116.  Google Scholar
  265. Hume, D. (1752): “Of the Balance of Trade.” reprinted as pp. 39–48 in Eichengreen, B. (ed.) (1985): The Gold Standard in Theory and History. New York: Methuen.  Google Scholar
  266. Im, K. S./Pesaran, M. H./Shin, Y. (2003): “Testing for Unit Roots in Heterogeneous Panels.” Journal of Econometrics 115: 53–74.  Google Scholar
  267. Jansen, W. J. (2000): International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance 19: 509–11.  Google Scholar
  268. Johnson, H. G. (1958): “The Balance of Payments.” Pakistan Economic Journal, reprinted in H. G. Johnson (1962): Money, Trade and Economic Growth. London: Unwin University Books.  Google Scholar
  269. Johnson, H. G. (1972): “The Monetary Approach to Banlance-of-Payments Theory.” Journal of Financial and Quantitative Analysis 7: 1555–72.  Google Scholar
  270. Jonson, P. D. (1976): “Money, Prices and Output – an Integrative Essay.” Kredit und Kapital (now Credit and Capital Markets) 4: 499–518.  Google Scholar
  271. Kao, C. (1999): “Spurious Regression and Residual-based Tests for Cointegration in Panel Data.” Journal of Econometrics 90: 1–44.  Google Scholar
  272. Kao, C./Chiang, M. (2001): “On the Estimation and Inference of a Cointegrated Regression in Panel Data.” Advances in Econometrics 15: 179–222.  Google Scholar
  273. Karlsson, S./Löthgren, M. (2006): “On the Power and Interpretation of Panel Unit Root Tests.” Economics Letters 66: 249–55.  Google Scholar
  274. Kim, S. H. (2001): “The Saving-Investment Correlation Puzzle Is Still a Puzzle.” Journal of International Money and Finance 20: 255–72.  Google Scholar
  275. Kouri, P. J. K. (1975): “The Hypothesis of Offsetting Capital Flows: A Case Study of Germany.” Journal of Monetary Economics 1: 21–39.  Google Scholar
  276. Kumar, S. (2015): “Regional Integration, Capital Mobility and Financial Intermediation Revisited: Application of General to Specific Method in Panel Data.” Journal of International Financial Markets, Institutions and Money 36: 1–17.  Google Scholar
  277. Kumar, S./Rao, B. B. (2011): “A Time-Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries.” World Economy 34: 473–85.  Google Scholar
  278. Kumar, S./Sen, R./Srivastava, S. (2014): “Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Regional Economic Communities in Africa.” Journal of International Financial Markets, Institutions and Money 29: 33–50.  Google Scholar
  279. Laidler, D. E. (1984): “The ‘Buffer Stock’ Notion in Monetary Economics.” Economic Journal 94: 17–34.  Google Scholar
  280. Laidler, D. E. (1985): “International Monetary Economics in Theory and Practice,” as Chapter 5, pp. 225–270 in J. Sargent (1985): Postwar Macroeconomic Developments. Toronto: University of Toronto Press.  Google Scholar
  281. Laidler, D. E. (1988): “Taking Money Seriously.” Canadian Journal of Economics 21: 687–713.  Google Scholar
  282. Laidler, D. E. (1990): Taking Money Seriously and Other Essays. Cambridge: MIT Press.  Google Scholar
  283. Lane, P. (2001): “The New Open Economy Macroeconomics: A Survey.” Journal of International Economics 54: 518–38.  Google Scholar
  284. Levi, M. D. (1996): “Are Capital Markets Internationally Integrated?” pp. 63–86 in Courchene, T. J./Neave, T. H. (eds.): Reforming the Canadian Financial Sector: Canada in Global Perspective. Kingston, Ontario: John Deutsch Institute for the Study of Economic Policy.  Google Scholar
  285. Levin, A./Lin, C./Chu, C. (2002): “Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties.” Journal of Econometrics 108: 1–24.  Google Scholar
  286. Maddala, G. S./Wu, S. (1999): “A Comparative Study of Unit Root Tests with Panel Data ad a New Simple Test.” Oxford Bulletin of Economics and Statistics 61: 631–52.  Google Scholar
  287. Mark, N. C./Sul, D. (2003): “Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand.” Oxford Bulletin of Economics and Statistics 65: 655–80.  Google Scholar
  288. McClure, J. H. (1994): “The Feldstein-Horioka Puzzle: the ISLM Model with Optimal Policy.” Open Economies Review 5: 371–82.  Google Scholar
  289. Montiel, P. (1994): “Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates.” World Bank Economic Review 8(3): 311–50.  Google Scholar
  290. Obstfeld, M./Rogoff, K. (1995): “The Intertemporal Approach to the Current Account, in Grossman, G./Rogoff, K. (eds.): Handbook of International Economics, Volume III, Elsevier Science, Amsterdam, 1731–99.  Google Scholar
  291. Obstfeld, M./Rogoff, K. (1996): Foundations of International Macroeconomics. MIT Press, Cambridge.  Google Scholar
  292. Obstfeld, M./Rogoff, K. (2000): “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” NBER Macroeconomics Annual 15: 339–90.  Google Scholar
  293. Ohlin, B. G. (1937): “Alternative Theories of the Rate of Interest.” Economic Journal 47: 423–7.  Google Scholar
  294. Olayeni, R. O./Tiwan, A. K./Wohar, M. E. (2021): “Fractional Frequency Flexible Fourier Form (FFFFF) for Panel Cointegration Test.” Applied Economics Letters 28: 482–6.  Google Scholar
  295. Pata, U. K. (2018): “The Feldstein-Horioka Puzzle in E7 Countries: Evidence from Panel Cointegration and Asymmetric Causality Analysis.” Journal of International Trade and Economic Development 27: 968–84.  Google Scholar
  296. Patinkin, D. (1965): Money, Interest, and Prices, 2nd edition. New York: Harper and Row.  Google Scholar
  297. Pedroni, P. (1999): “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,” Oxford Bulletin of Economics and Statistics 61: 653–78.  Google Scholar
  298. Pedroni, P. (2000): “Fully Modified OLS for Heterogeneous Panels,” Advances in Econometrics 15: 93–130.  Google Scholar
  299. Pesaran, M. H. (2004): “General Diagnostic Tests fro Cross Section Dependence in Panels.” CESifo Working Paper No. 1229.  Google Scholar
  300. Pesaran, M. H. (2007): “A Simple Panel Unit Root Test in the Presence of Cross Section Dependence.” Journal of Applied Econometrics 22: 265–312.  Google Scholar
  301. Pesaran, M. H. (2015a): Time Series and Panel Data Econometrics. Oxford: Oxford University Press.  Google Scholar
  302. Pesaran, M. H. (2015b): “Testing Weak Cross-Sectional Dependence in Large Samples.” Econometric Reviews 34: 1089–1117.  Google Scholar
  303. Phillips, P. C. B./Moon, H. (1999): “Linear Regression Limit Theory for Nonstationary Panel Data.” Econometrica 67: 1057–111.  Google Scholar
  304. Polak, J. J. (2001): “The Two Monetary Approaches to the Balance of Payments: Keynesians and Johnsonians.” IMF Working Paper WP/01/100. Washington, D.C.: International Monetary Fund.  Google Scholar
  305. Robertson, D. H. (1937): “Alternative Theories in the Rate of Interest.” Economic Journal 47: 423–43.  Google Scholar
  306. Schmidt, C. (2007): “Saving-Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?” Open Economies Review 18: 347–67.  Google Scholar
  307. Singh, T. (2016): “Rhetorics of Saving-Investment Correlations and the International Mobility of Capital: A Survey.” Journal of International Trade and Economic Development 25: 636–690.  Google Scholar
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  346. Jansen, W. J. (2000): International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance 19: 509–11.  Google Scholar
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  348. Johnson, H. G. (1972): “The Monetary Approach to Banlance-of-Payments Theory.” Journal of Financial and Quantitative Analysis 7: 1555–72.  Google Scholar
  349. Jonson, P. D. (1976): “Money, Prices and Output – an Integrative Essay.” Kredit und Kapital (now Credit and Capital Markets) 4: 499–518.  Google Scholar
  350. Kao, C. (1999): “Spurious Regression and Residual-based Tests for Cointegration in Panel Data.” Journal of Econometrics 90: 1–44.  Google Scholar
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  354. Kouri, P. J. K. (1975): “The Hypothesis of Offsetting Capital Flows: A Case Study of Germany.” Journal of Monetary Economics 1: 21–39.  Google Scholar
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  368. Montiel, P. (1994): “Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates.” World Bank Economic Review 8(3): 311–50.  Google Scholar
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  372. Ohlin, B. G. (1937): “Alternative Theories of the Rate of Interest.” Economic Journal 47: 423–7.  Google Scholar
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  380. Pesaran, M. H. (2015a): Time Series and Panel Data Econometrics. Oxford: Oxford University Press.  Google Scholar
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  382. Phillips, P. C. B./Moon, H. (1999): “Linear Regression Limit Theory for Nonstationary Panel Data.” Econometrica 67: 1057–111.  Google Scholar
  383. Polak, J. J. (2001): “The Two Monetary Approaches to the Balance of Payments: Keynesians and Johnsonians.” IMF Working Paper WP/01/100. Washington, D.C.: International Monetary Fund.  Google Scholar
  384. Robertson, D. H. (1937): “Alternative Theories in the Rate of Interest.” Economic Journal 47: 423–43.  Google Scholar
  385. Schmidt, C. (2007): “Saving-Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?” Open Economies Review 18: 347–67.  Google Scholar
  386. Singh, T. (2016): “Rhetorics of Saving-Investment Correlations and the International Mobility of Capital: A Survey.” Journal of International Trade and Economic Development 25: 636–690.  Google Scholar
  387. Tew, B. (1985): The Evolution of the International Monetary System 1945–85, 3rd edition. London: Hutchinson & Co.  Google Scholar
  388. Thornton, H. (1802[1939]): An Enquiry into the Nature and Effect of the Paper Credit of Great Britain. London: Allen & Unwin.  Google Scholar
  389. Tsiang, S. C. (1966): “Walras’ Law, Say’s Law, and Liquidity Preference in General Equilibrium Analysis.” International Economic Review 7: 329–45.  Google Scholar
  390. Tsiang, S. C. (1977): “The Monetary Theoretic Foundation of the Modern Monetary Approach to the Balance of Payments.” Oxford Economic Papers 29: 319–38.  Google Scholar
  391. Tsiang, S. C. (1988): “The Flow Formulation of the Money Market Equilibrium for an Open Economy and the Determination of the Exchange Rate.” reprinted as Chapter 9 in Kohn, M. (ed.) (1989): Finance Constraints and the Theory of Money: Selected Papers. London: Academic Press.  Google Scholar
  392. Vanhoose, D. D. (2004): “The New Open Economy Macroeconomics: A Critical Appraisal.” Open Economies Review 15: 193–215.  Google Scholar
  393. Wagner, M./Hlouskova, J. (2010): “The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study.” Econometric Reviews 29: 182–223.  Google Scholar
  394. Wicksell, K. (1936): Interest and Prices. London: Macmillan.  Google Scholar
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  397. Artis, M./Lewis, M. (1991): Money in Britain: Monetary Policy, Innovation and Europe. Hertfordshire: Philip Allan.  Google Scholar
  398. Aschheim, J./Hsieh, C. Y. (1969): Macroeconomics: Income and Monetary Theory. Columbus, Ohio: Charles E. Merrill Publishing Co.  Google Scholar
  399. Baltagi, B. H. (2013): Econometric Analysis of Panel Data, 5th Edition. West Sussex, U.K.: John Wiley & Sons Ltd.  Google Scholar
  400. Belloc, M./Gandolfo, G. (2002): “Does the Feldstein-Horioka Puzzle Exist? Theoretical Analysis and Empirical Evidence.” CIDEI Working Paper No. 67.  Google Scholar
  401. Breitung, J. (2000): “The Local Power of Some Unit Root Tests for Panel Data.” Advances in Econometrics 15: 161–77.  Google Scholar
  402. Camarero, M./Sapena, M./Tamarit, C. (2020): “Modelling Time-Varying Parameters in Panel Data State-Space Framework: An Application to The Feldstein-Horioka Puzzle.” Computational Economics 56: 87–114.  Google Scholar
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  404. Carvalho, D. (2018): “Financial Integration and the Great Leveraging.” International Journal of Finance and Economics 24: 54–79.  Google Scholar
  405. Chan, K./Dang, V. Q. T./Lai, J. T. (2018): “Capital Market Integration in ASEAN: A Non-Stationary Panel Data Analysis.” North American Journal of Economics and Finance 46: 249–60.  Google Scholar
  406. Choi, I. (2001): “Unit Root Tests for Panel Data.” Journal of International Money and Finance 20: 249–72.  Google Scholar
  407. Chu, K. H. (2012): “The Feldstein-Horioka Puzzle and Spurious Ratio Correlation.” Journal of International Money and Finance 31: 292–309.  Google Scholar
  408. Chu, K. H. (2017): “The Feldstein-Horioka Puzzle, the Frankel-Dooley-Mathieson Puzzle, Spurious Ratio Correlation and Measurement Errors.” Economics Bulletin 37: 2004–19.  Google Scholar
  409. Coakley, J./Kulasi, F./Smith, R. (1998): “The Feldstein-Horioka Puzzle and Capital Mobility: A Review.” International Journal of Finance and Economics 3: 169–88.  Google Scholar
  410. Corbin, A. (2004): “Capital Mobility and Adjustment in the Current Account Imbalances: A Bounds Testing Approach to Cointegration in 12 Countries (1880–2001).” International Journal of Finance and Economics 9: 257–76.  Google Scholar
  411. Dellas, H./Tavlas, G. S. (2018): “Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules.” Cato Journal 38: 361–77.  Google Scholar
  412. Dooley, M. P./Frankel, J./Mathieson, D. J. (1987): “International Capital Mobility: What Do Saving-Investment Correlations Tell Us?” International Monetary Fund Staff Papers 34: 503–30.  Google Scholar
  413. Drakos, A.A./Kouretas, G. P./Stavroyiannis, S./Zarangas, L. (2017): “Is the Feldstein-Horioka Puzzle Still with Us? National Saving-Investment Dynamics and International Capital Mobility: A Panel Data Analysis across EU Member Countries.” Journal of International Markets, Institutions and Money 47: 76–88.  Google Scholar
  414. Drakos, A.A./Kouretas, G. P./Vlamis, P. (2018): “Saving, Investment and Capital Mobility in EU Countries: A Panel Data Analysis of the Feldstein-Horioka Puzzle.” Applied Economics 50: 3798–811.  Google Scholar
  415. Eyuboglu, S./Uzar, U. (2020): “Is the Feldstein-Horioka Puzzle Valid in Lucky Seven Countries?” Journal of International Trade and Economic Development 29: 399–419.  Google Scholar
  416. Feldstein, M./Horioka, C. (1980): “Domestic Saving and International Capital Flows.” Economic Journal 90: 314–29.  Google Scholar
  417. Frenkel, J. A./Johnson, H. G. (eds.) (1976): The Monetary Approach to the Balance of Payments. Allen & Unwin.  Google Scholar
  418. Gandolfo, G. (2001): International Finance and Open-Economy Macroeconomics. Berlin: Springer.  Google Scholar
  419. Ginama, I./Hayakawa, K./Kanmei, T. (2018): “Examining the Feldstein-Horioka Puzzle Using Common Factors Panel and Interval Estimation.” Japan and the World Economy 48: 11–21.  Google Scholar
  420. Hadri, K. (2000): “Testing for Stationarity in Heterogeneous Panel Data.” Econometrics Journal 3: 148–61.  Google Scholar
  421. Hamori, S. (2007): “International Capital Flows and the Frankel-Dooley-Mathieson Puzzle” Economics Bulletin 15, 1–12.  Google Scholar
  422. Hlouskova, J./Wagner, M. (2006): “The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study.” Econometric Reviews 25: 85–116.  Google Scholar
  423. Hume, D. (1752): “Of the Balance of Trade.” reprinted as pp. 39–48 in Eichengreen, B. (ed.) (1985): The Gold Standard in Theory and History. New York: Methuen.  Google Scholar
  424. Im, K. S./Pesaran, M. H./Shin, Y. (2003): “Testing for Unit Roots in Heterogeneous Panels.” Journal of Econometrics 115: 53–74.  Google Scholar
  425. Jansen, W. J. (2000): International Capital Mobility: Evidence from Panel Data. Journal of International Money and Finance 19: 509–11.  Google Scholar
  426. Johnson, H. G. (1958): “The Balance of Payments.” Pakistan Economic Journal, reprinted in H. G. Johnson (1962): Money, Trade and Economic Growth. London: Unwin University Books.  Google Scholar
  427. Johnson, H. G. (1972): “The Monetary Approach to Banlance-of-Payments Theory.” Journal of Financial and Quantitative Analysis 7: 1555–72.  Google Scholar
  428. Jonson, P. D. (1976): “Money, Prices and Output – an Integrative Essay.” Kredit und Kapital (now Credit and Capital Markets) 4: 499–518.  Google Scholar
  429. Kao, C. (1999): “Spurious Regression and Residual-based Tests for Cointegration in Panel Data.” Journal of Econometrics 90: 1–44.  Google Scholar
  430. Kao, C./Chiang, M. (2001): “On the Estimation and Inference of a Cointegrated Regression in Panel Data.” Advances in Econometrics 15: 179–222.  Google Scholar
  431. Karlsson, S./Löthgren, M. (2006): “On the Power and Interpretation of Panel Unit Root Tests.” Economics Letters 66: 249–55.  Google Scholar
  432. Kim, S. H. (2001): “The Saving-Investment Correlation Puzzle Is Still a Puzzle.” Journal of International Money and Finance 20: 255–72.  Google Scholar
  433. Kouri, P. J. K. (1975): “The Hypothesis of Offsetting Capital Flows: A Case Study of Germany.” Journal of Monetary Economics 1: 21–39.  Google Scholar
  434. Kumar, S. (2015): “Regional Integration, Capital Mobility and Financial Intermediation Revisited: Application of General to Specific Method in Panel Data.” Journal of International Financial Markets, Institutions and Money 36: 1–17.  Google Scholar
  435. Kumar, S./Rao, B. B. (2011): “A Time-Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries.” World Economy 34: 473–85.  Google Scholar
  436. Kumar, S./Sen, R./Srivastava, S. (2014): “Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Regional Economic Communities in Africa.” Journal of International Financial Markets, Institutions and Money 29: 33–50.  Google Scholar
  437. Laidler, D. E. (1984): “The ‘Buffer Stock’ Notion in Monetary Economics.” Economic Journal 94: 17–34.  Google Scholar
  438. Laidler, D. E. (1985): “International Monetary Economics in Theory and Practice,” as Chapter 5, pp. 225–270 in J. Sargent (1985): Postwar Macroeconomic Developments. Toronto: University of Toronto Press.  Google Scholar
  439. Laidler, D. E. (1988): “Taking Money Seriously.” Canadian Journal of Economics 21: 687–713.  Google Scholar
  440. Laidler, D. E. (1990): Taking Money Seriously and Other Essays. Cambridge: MIT Press.  Google Scholar
  441. Lane, P. (2001): “The New Open Economy Macroeconomics: A Survey.” Journal of International Economics 54: 518–38.  Google Scholar
  442. Levi, M. D. (1996): “Are Capital Markets Internationally Integrated?” pp. 63–86 in Courchene, T. J./Neave, T. H. (eds.): Reforming the Canadian Financial Sector: Canada in Global Perspective. Kingston, Ontario: John Deutsch Institute for the Study of Economic Policy.  Google Scholar
  443. Levin, A./Lin, C./Chu, C. (2002): “Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties.” Journal of Econometrics 108: 1–24.  Google Scholar
  444. Maddala, G. S./Wu, S. (1999): “A Comparative Study of Unit Root Tests with Panel Data ad a New Simple Test.” Oxford Bulletin of Economics and Statistics 61: 631–52.  Google Scholar
  445. Mark, N. C./Sul, D. (2003): “Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand.” Oxford Bulletin of Economics and Statistics 65: 655–80.  Google Scholar
  446. McClure, J. H. (1994): “The Feldstein-Horioka Puzzle: the ISLM Model with Optimal Policy.” Open Economies Review 5: 371–82.  Google Scholar
  447. Montiel, P. (1994): “Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates.” World Bank Economic Review 8(3): 311–50.  Google Scholar
  448. Obstfeld, M./Rogoff, K. (1995): “The Intertemporal Approach to the Current Account, in Grossman, G./Rogoff, K. (eds.): Handbook of International Economics, Volume III, Elsevier Science, Amsterdam, 1731–99.  Google Scholar
  449. Obstfeld, M./Rogoff, K. (1996): Foundations of International Macroeconomics. MIT Press, Cambridge.  Google Scholar
  450. Obstfeld, M./Rogoff, K. (2000): “The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?” NBER Macroeconomics Annual 15: 339–90.  Google Scholar
  451. Ohlin, B. G. (1937): “Alternative Theories of the Rate of Interest.” Economic Journal 47: 423–7.  Google Scholar
  452. Olayeni, R. O./Tiwan, A. K./Wohar, M. E. (2021): “Fractional Frequency Flexible Fourier Form (FFFFF) for Panel Cointegration Test.” Applied Economics Letters 28: 482–6.  Google Scholar
  453. Pata, U. K. (2018): “The Feldstein-Horioka Puzzle in E7 Countries: Evidence from Panel Cointegration and Asymmetric Causality Analysis.” Journal of International Trade and Economic Development 27: 968–84.  Google Scholar
  454. Patinkin, D. (1965): Money, Interest, and Prices, 2nd edition. New York: Harper and Row.  Google Scholar
  455. Pedroni, P. (1999): “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,” Oxford Bulletin of Economics and Statistics 61: 653–78.  Google Scholar
  456. Pedroni, P. (2000): “Fully Modified OLS for Heterogeneous Panels,” Advances in Econometrics 15: 93–130.  Google Scholar
  457. Pesaran, M. H. (2004): “General Diagnostic Tests fro Cross Section Dependence in Panels.” CESifo Working Paper No. 1229.  Google Scholar
  458. Pesaran, M. H. (2007): “A Simple Panel Unit Root Test in the Presence of Cross Section Dependence.” Journal of Applied Econometrics 22: 265–312.  Google Scholar
  459. Pesaran, M. H. (2015a): Time Series and Panel Data Econometrics. Oxford: Oxford University Press.  Google Scholar
  460. Pesaran, M. H. (2015b): “Testing Weak Cross-Sectional Dependence in Large Samples.” Econometric Reviews 34: 1089–1117.  Google Scholar
  461. Phillips, P. C. B./Moon, H. (1999): “Linear Regression Limit Theory for Nonstationary Panel Data.” Econometrica 67: 1057–111.  Google Scholar
  462. Polak, J. J. (2001): “The Two Monetary Approaches to the Balance of Payments: Keynesians and Johnsonians.” IMF Working Paper WP/01/100. Washington, D.C.: International Monetary Fund.  Google Scholar
  463. Robertson, D. H. (1937): “Alternative Theories in the Rate of Interest.” Economic Journal 47: 423–43.  Google Scholar
  464. Schmidt, C. (2007): “Saving-Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle?” Open Economies Review 18: 347–67.  Google Scholar
  465. Singh, T. (2016): “Rhetorics of Saving-Investment Correlations and the International Mobility of Capital: A Survey.” Journal of International Trade and Economic Development 25: 636–690.  Google Scholar
  466. Tew, B. (1985): The Evolution of the International Monetary System 1945–85, 3rd edition. London: Hutchinson & Co.  Google Scholar
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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.

Table of Contents

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

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