Financial Versus Monetary Mercantilism-Long-Run View of Large International Reserves Hoarding

25 Pages Posted: 14 Oct 2008

See all articles by Joshua Aizenman

Joshua Aizenman

National Bureau of Economic Research (NBER)

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2007

Abstract

The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism - hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism-subsidizing the cost of capital- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding, but may be associated with negative externalities leading to competitive hoarding.

Keywords: Mercantilism, cost of capital, competitive real depreciations, self insurance, precautionary hoarding

JEL Classification: F15, F31, F43

Suggested Citation

Aizenman, Joshua and Lee, Jaewoo, Financial Versus Monetary Mercantilism-Long-Run View of Large International Reserves Hoarding (February 1, 2007). Available at SSRN: https://ssrn.com/abstract=1284064 or http://dx.doi.org/10.2139/ssrn.1284064

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jaewoo Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

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