Munich Personal RePEc Archive

The Feldstein-Horioka puzzle and the global recession period: Evidence from South Africa using asymmetric cointegration analysis

Phiri, Andrew (2017): The Feldstein-Horioka puzzle and the global recession period: Evidence from South Africa using asymmetric cointegration analysis.

[img]
Preview
PDF
MPRA_paper_79096.pdf

Download (12MB) | Preview

Abstract

In this study we examine the effects of the 2007-2008 global financial crisis on the Feldstein-Horioka coefficient for South Africa using momentum threshold cointegration and error correction techniques applied to quarterly national savings-investment time series collected between 2000:Q1 and 2017:Q1. Our empirical strategy consists of segregating the data into three samples; one corresponding to the full sample (1960:Q1 – 2016:Q4), another corresponding to the pre-crisis period (1960:Q1-2008:Q3) and the last corresponding to the post-crisis period (2008:Q4-2016:Q4). Our empirical results validate asymmetric cointegration effects for both the full and the pre-crisis periods while only accepting a linear cointegration relation for the post-crisis period. The saving-retention coefficient estimates produced are 0.59 (significant), 0.64 (significant), and 0.22 (insignificant) for the full, pre-crisis and post-crisis periods, respectively. These results imply that international capital mobility has increased in the post-crisis period and this may be primarily due to the effects of a redirection of private capital flows by investors to safe haven assets. Therefore policy plans of further relaxing of capital controls is inadvisable considering that capital is already highly mobile.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.