Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5084180 | International Review of Economics & Finance | 2009 | 10 Pages |
Abstract
The large correlation between domestic savings and investment is well documented and is known as the Feldstein-Horioka puzzle. We demonstrate that estimates of the FH coefficients using the standard framework are biased upward in the presence of highly positively correlated inward and outward capital flows. Using data for the 14 OECD countries, the analysis shows that the significant home bias documented by FH and others is also consistent with much higher levels of capital mobility when capital outflows and inflows are highly positively correlated. Taking account for these correlations reduces the estimated home bias somewhere between 45% and 90%.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
George Georgopoulos, Walid Hejazi,