Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/206712
Authors: 
Levy, Daniel
Year of Publication: 
1995
Citation: 
[Journal:] Open Economies Review [ISSN:] 1573-708X [Volume:] 6 [Issue:] 3 [Pages:] 237-254
Publisher: 
Springer, Heidelberg
Abstract: 
I expand Feldstein's (1983) model by including flexible exchange rate and by introducing endogenous fiscal policy. Using this model, I demonstrate how a positive investment-saving correlation can arise in a world with endogenous fiscal policy. I show that this correlation does not depend on capital mobility and therefore is compatible with any degree of capital mobility. This implies that the observed investment-saving comovement is not necessarily due to imperfect capital mobility. The model has a testable implication: it predicts a lack of Granger causality from private saving to private investment. Empirical examination of this prediction indicates that U.S. time series data is compatible with the hypothesis of endogenous fiscal policy during a flexible exchange rate period, but not during a fixed exchange rate period.
Subjects: 
Feldstein-Horioka Puzzle
Investment
Saving
Capital Mobility
Endogenous Fiscal Policy
JEL: 
F41
E62
H39
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.