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Testing the validity of the Feldstein–Horioka puzzle for Australia

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Abstract:

This article presents the details of an investigation into the relationship between investment and savings in Australia over the period 1960 to 2007. Using five time series techniques our results reveal that the Feldstein–Horioka puzzle exists in a weak form, with a lower saving retention coefficient. Granger causality tests illustrate that savings Granger causes investment, both in the short and long runs. Our results suggest Australia could effectively adopt policies that focus on increasing investment through increasing domestic savings.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036846.2010.511993

Affiliations: Department of Economics,Auckland University of Technology, Auckland 1142, New Zealand

Publication date: 2012-02-01

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