Jerry Coakley

Current Account Solvency and the Feldstein-Horioka Puzzle

In this paper, the authors suggest an alternative explanation of the high cross-section association between shares of saving and investment in GDP which M. Feldstein and C. Horioka (1980) interpret as evidence of low capital mobility. In OECD countries, saving and investment shares appear to be integrated of order one. The authors show that a solvency constraint implies that the current balance is stationary and, thus, that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility. It is this long-run relation that the Feldstein-Horioka cross-section regression captures. Econometric results for twenty-three OECD countries over the 1960-92 period are consistent with this explanation. Copyright 1996 by Royal Economic Society.

The Feldstein-Horioka Puzzle and Capital Mobility: A Review

This paper reviews how economists responded to the Feldstein-Horioka (FH) view that a high saving-investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open-economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross-section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving-investment comovements are informative about capital mobility is still unresolved although the skeptics appear to be in the ascendancy. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Unobserved heterogeneity in panel time series models

Recently, the large T panel literature has emphasized unobserved, time-varying heterogeneity that may stem from omitted common variables or global shocks that affect each individual unit differently. These latent common factors induce cross-section dependence and may lead to inconsistent regression coefficient estimates if they are correlated with the explanatory variables. Moreover, if the process underlying these factors is nonstationary, the individual regressions will be spurious but pooling or averaging across individual estimates still permits consistent estimation of a long-run coefficient. The need to tackle both error cross-section dependence and persistent autocorrelation is motivated by the evidence of their pervasiveness found in three well-known, international finance and macroeconomic examples. A range of estimators is surveyed and their finite-sample properties are examined by means of Monte Carlo experiments. These reveal that a mean group version of the common-correlated-effects estimator stands out as the most robust since it is the preferred choice in rather general (non) stationary settings where regressors and errors share common factors and their factor loadings are possibly dependent. Other approaches which perform reasonably well include the two-way fixed effects, demeaned mean group and between estimators but they are less efficient than the common-correlated-effects estimator.

New panel unit root tests of PPP

Abstract We use the new panel unit root tests [Im, K.S., Pesaran, M.H., Shin, Y., 1995. Testing for unit roots in heterogenous panels. WP 9526, DAE, University of Cambridge. Revised March 1997] to analyse the stationarity of real exchange rates for the G10 economies and Switzerland. Our results for monthly data 1973–96 indicate mean reversion in real exchange rates and a half life of under three years for one-off shocks.

The Integration of Property and Financial Markets

In this paper, the nature of property and the growing links between property and financial markets are addressed. It is argued that property must be viewed as a commodity with use-value and exchange-value aspects. Property has been affected by two developments in the 1980s: the shift to services (especially financial services) and waves of deregulation. The increase in demand during the 1980s boom stemmed both from investors such as property companies and from end users, especially those engaged in or expanding into securities business following Big Bang. As property markets, including the housing retail finance circuit, became increasingly intertwined with wholesale financial markets they became more susceptible to the vicissitudes of these markets and tendencies toward crisis. The exchange value of property became disengaged from its use value as property took on the attributes of a quasi-financial asset.

Saving, Investment and Capital Mobility in LDCs

The Coakley, Kulasi, and Smith current-account solvency model (1996) is used to investigate saving and investment in LDCs. This model implies that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility. Panel and conventional unit-root tests indicate that LDC current accounts are stationary. The Feldstein-Horioka cross-section regression coefficient for LDCs is lower than the corresponding OECD coefficient, indicating different policy responses in these countries rather than higher capital mobility. Finally, adjustment toward solvency is slower in LDCs, reflecting their vulnerability to external shocks and the impact of financial repression. Copyright 1999 by Blackwell Publishing Ltd.

Cointegration of long span saving and investment

Abstract We find that saving and investment cointegrate in all or most countries in Maddisons (Research Memorandum No. 443, 1991) long span data set by a variety of time series and panel data tests. We interpret our results as reflecting current account solvency and not capital immobility.

Post-IPO Operating Performance, Venture Capital and the Bubble Years

We analyse the post-issue operating performance of 316 venture-backed and 274 non-venture UK IPOs 1985-2003. The finding of a statistically significant five-year, operational decline exhibited over the full sample period is not robust. Rather it is driven by the dramatic underperformance during the 1998-2000 bubble years while IPOs perform normally in the remaining years. Cross-section regression results indicate support for venture capital certification in the non-bubble years but a significantly negative relationship between operating performance and venture capitalist board representation during the bubble years. The bubble year underperformance is explained by market timing and by low quality companies taking advantage of investor sentiment. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Nonparametric cointegration analysis of real exchange rates

This study indirectly addresses the issue of potential nonlinearities in real exchange rate adjustment for 18 OECD economies 1973–1998 using recent developments in the theory of nonparametric cointegration. While the standard Johansen tests yield mixed evidence, the results from a new nonparametric approach are clearly supportive of real exchange rate stationarity. Since the latter approach allows for a relatively general data-generating process, the findings are consistent with nonlinear mean reversion.

Numerical issues in threshold autoregressive modeling of time series

This paper analyses the contribution of various numerical approaches to making the estimation of threshold autoregressive time series more efficient. It relies on the computational advantages of QR factorizations and proposes Givens transformations to update these factors for sequential LS problems. By showing that the residual sum of squares is a continuous rational function over threshold intervals it develops a new fitting method based on rational interpolation and the standard necessary optimality condition. Taking as benchmark a simple grid search, the paper illustrates via Monte Carlo simulations the efficiency gains of the proposed tools.