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00/8 Exchange rate regimes and the Feldstein-Horioka Puzzle: The French evidence

Erdal Özmen and Kağan Parmaksız

This paper investigates whether the Feldstein and Horioka (1980) argument on domestic saving-investment relationship is supported by the French data when an endogenous structural break coresponding to a major policy regime change is taken into account. The evidence suggest that the saving-investment cointegration disappears after the estimated endogenous structural break point in 1973 coinciding with the end of the Bretton Woods System of fixed exchange rates. Consistent with a current acoount targeting policy, an investment-driven saving process appears to be the case for the fixed exchange rate regime period.


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