Foreign Reserve Accumulation and the Mercantilist Motive Hypothesis

41 Pages Posted: 13 Feb 2014 Last revised: 26 Nov 2014

See all articles by Patrick Carvalho

Patrick Carvalho

Australian National University (ANU), Centre for Applied Macroeconomic Analysis and the Research School of Economics

Renee Fry-McKibbin

Australian National University (ANU) - Crawford School of Public Policy; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy

Date Written: February 1, 2014

Abstract

A fivefold increase in central bank foreign reserves across the globe over the past fifteen years has prompted the question of whether this constitutes a new form of mercantilism. According to this view, countries accumulate foreign reserves in order to support export promotion by influencing exchange rates and/or to signal relative economic strength as a modern version of bullionism. Using a unique dataset on daily foreign exchange intervention, this paper investigates the mercantilist motive hypothesis for the case of Brazil over the period 2009-2012. The findings support reserve accumulation as a by product of successful central bank intervention in the Brazilian foreign exchange market. The results also indicate regional currency intervention spillovers to Brazil's neighbouring countries, including on their foreign reserve build-ups.

Keywords: Foreign exchange intervention, currency intervention, exchange rate volatility, reserve accumulation, factor model, emerging markets

JEL Classification: F31, F36, F41

Suggested Citation

Carvalho, Patrick and Fry-McKibbin, Renee, Foreign Reserve Accumulation and the Mercantilist Motive Hypothesis (February 1, 2014). CAMA Working Paper No. 18/2014, Available at SSRN: https://ssrn.com/abstract=2394301 or http://dx.doi.org/10.2139/ssrn.2394301

Patrick Carvalho

Australian National University (ANU), Centre for Applied Macroeconomic Analysis and the Research School of Economics ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Renee Fry-McKibbin (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy ( email )

Canberra, Australian Capital Territory 0200
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
71
Abstract Views
970
Rank
589,797
PlumX Metrics