Exchange rate regimes, saving glut and the Feldstein-Horioka puzzle: The East Asian experience

Kaya-Bahçe S., ÖZMEN E.

Physica A: Statistical Mechanics and its Applications, vol.387, no.11, pp.2561-2564, 2008 (Peer-Reviewed Journal) identifier

  • Publication Type: Article / Article
  • Volume: 387 Issue: 11
  • Publication Date: 2008
  • Doi Number: 10.1016/j.physa.2008.01.016
  • Journal Name: Physica A: Statistical Mechanics and its Applications
  • Journal Indexes: Science Citation Index Expanded, Scopus
  • Page Numbers: pp.2561-2564


This paper investigates whether the recent experience of the emerging East Asian countries with current account surpluses is consistent with the "saving glut" hypothesis and the Feldstein and Horioka puzzle. The evidence suggests that the saving retention coefficients declined substantially in most of the countries after an endogenous break date coinciding with a major exchange rate regime change with the 1997-1998 crisis. Exchange rate flexibility appears to be enhancing financial integration. The results are consistent with an "investment slump" explanation rather than the "saving glut" postulation. © 2008 Elsevier Ltd. All rights reserved.