Asymmetries exist in the Feldstein-Horioka relationship

Hamid Raza, Gylfi Zoega, Stephen Kinsella

Research output: Contribution to journalJournal articleResearchpeer-review

2 Citations (Scopus)

Abstract

Most studies assume symmetry between saving and investment changes. They are wrong to do so. We model the response of investment to positive and negative changes in saving for 17 OECD countries from 1960 to 2015. We use both panel and time series methods. We find that negative changes in saving have a stronger effect on investment than positive changes in saving do. In the short run, causality only runs from negative changes in saving to investment. In the long run, both negative and positive changes in saving Granger cause investment. Models relying on saving-investment symmetry in the long run are called into question. Policies assuming symmetric effects throughout the business cycle are similarly flawed.
Original languageEnglish
JournalThe Journal of International Trade & Economic Development
Volume27
Issue number6
Pages (from-to)667-684
Number of pages18
ISSN0963-8199
DOIs
Publication statusPublished - 2018

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