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Does the Feldstein–Horioka relationship vary with economic policy uncertainty?
- Source :
- Applied Economics Letters; Aug2021, Vol. 28 Issue 14, p1187-1194, 8p, 6 Charts, 3 Graphs
- Publication Year :
- 2021
-
Abstract
- This research addresses the omitted-uncertainty bias and functional form misspecification problem when estimating the saving-investment relationship. We apply a semiparametric varying-coefficient cointegration approach to test for the presence of an 'uncertainty-varying' cointegrating relationship between savings and investment. Based on quarterly time series data for the U.S. from 1947Q1 to 2014Q4, we find that the saving-retention coefficient is a U-shaped function of economic policy uncertainty. This indicates that domestic investment is more constraint by domestic savings at very high and very low levels of uncertainty. Given the continued rise in economic policy uncertainty, our estimate predicts that domestic investment will become more constrained by domestic savings. Further sub-period analysis shows that the null hypothesis of the presence of an uncertainty-varying cointegrating relationship between savings and investment cannot be rejected in the recent sub-period of 1999Q1-2014Q4, suggesting that the U.S current account is sustainable. [ABSTRACT FROM AUTHOR]
- Subjects :
- ECONOMIC policy
UNCERTAINTY
NULL hypothesis
BALANCE of payments
TIME series analysis
Subjects
Details
- Language :
- English
- ISSN :
- 13504851
- Volume :
- 28
- Issue :
- 14
- Database :
- Complementary Index
- Journal :
- Applied Economics Letters
- Publication Type :
- Academic Journal
- Accession number :
- 151405191
- Full Text :
- https://doi.org/10.1080/13504851.2020.1804043