European Integration and the Feldstein–Horioka Puzzle

19 Pages Posted: 8 Nov 2016

See all articles by Margarita Katsimi

Margarita Katsimi

Athens University of Economics and Business - Department of International and European Economic Studies; CESifo (Center for Economic Studies and Ifo Institute)

Gylfi Zoega

University of Iceland; University of London - Birkbeck College

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Date Written: December 2016

Abstract

We apply the differences‐in‐differences method to study the effect of the European single market in 1993 and the euro in 1999 on the Feldstein–Horioka equation where countries outside the single market serve as a control group and those within as a treatment group. We find structural breaks that coincide with both events, in addition to the financial crisis in 2008. The results suggest that the correlation between investment and savings depends on institutions, exchange rate risk and credit risk. Furthermore, the pattern of capital flows within the single market leaves a significant part of the flows unexplained by fundamentals.

Suggested Citation

Katsimi, Margarita and Zoega, Gylfi, European Integration and the Feldstein–Horioka Puzzle (December 2016). Oxford Bulletin of Economics and Statistics, Vol. 78, Issue 6, pp. 834-852, 2016. Available at SSRN: https://ssrn.com/abstract=2866086 or http://dx.doi.org/10.1111/obes.12130

Margarita Katsimi (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

76, Patision Avenue
GR-10434 Athens
Greece

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

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