On the Sources of the Feldstein–Horioka Puzzle across Time and Frequencies

This study quantitatively assesses existing explanations for the Feldstein–Horioka puzzle using time–frequency domain analyses for nine countries for the period 1885–2010. The main findings are summarized as follows. First, large economies (e.g. the United States, Italy) show higher correlations between saving and investment than middle‐sized and small countries do. Second, countries can be grouped into two time‐changing patterns of correlations: inverted U‐shaped and increasing patterns. Third, the fiscal balance seems most related to a positive saving‐investment correlation in many countries. Fourth, a global common factor plays an important role in explaining the Feldstein–Horioka puzzle.