A regime switching approach to the Feldstein-Horioka puzzle: Evidence from some European countries

Telatar E., Telatar F., Bolatoglu N.

JOURNAL OF POLICY MODELING, vol.29, no.3, pp.523-533, 2007 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 29 Issue: 3
  • Publication Date: 2007
  • Doi Number: 10.1016/j.jpolmod.2006.12.001
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.523-533
  • Hacettepe University Affiliated: Yes


The domestic savings-investment correlation is re-examined using data for some European countries in order to obtain some information about the degree of capital mobility in the sense of the Feldstein and Horioka [Feldstein, M., & Horioka, C. Y. (1980). Domestic saving and international capital flows. Economic Journal 90, 314-329]. Applying a Markov-switching model with heteroscedastic disturbances, we find that the correlation coefficients are unstable due to the policy regime changes consistent with the Lucas [Lucas, R. (1976). Econometric policy evaluation: A critique. In K. Brunner, & A. H. Meltzer (Eds.), The Phillip's curve and labor markets. Amsterdam: North-Holland] critique. (C) 2006 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.