What Drove the Massive Hoarding of International Reserves in Emerging Economies? A Time-Varying Approach

Review of International Economics, Vol 20, Issue 1, 2012

28 Pages Posted: 21 Sep 2011 Last revised: 24 Jul 2012

See all articles by Anne Laure Delatte

Anne Laure Delatte

Groupe ESC Rouen; Observatoire Français des Conjonctures Economiques

Julien Fouquau

ESCP Business School

Date Written: December 17, 2010

Abstract

Existing empirical models fail to explain the surge in the accumulation of foreign exchange reserves by emerging countries during the last decade. In this paper, we estimate the demand for international reserves on a panel of emerging countries using a Time-Varying Panel Smooth Transition Regression model (TV-PSTR) to relax the assumption of coefficient stability in the relationship. We find evidence that the parameters are not constant. In addition, we observe that the coefficients remained relatively stable until 2000 and then increased gradually and strongly thereafter. Our specification accounts for an acceleration that linear specifications fail to explain. Finally, we find that mercantilist motives are the major driver of this acceleration.

Suggested Citation

Delatte, Anne Laure and Fouquau, Julien, What Drove the Massive Hoarding of International Reserves in Emerging Economies? A Time-Varying Approach (December 17, 2010). Review of International Economics, Vol 20, Issue 1, 2012, Available at SSRN: https://ssrn.com/abstract=1931673 or http://dx.doi.org/10.2139/ssrn.1931673

Anne Laure Delatte (Contact Author)

Groupe ESC Rouen ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France

Observatoire Français des Conjonctures Economiques ( email )

69 Quai d'Orsay
Paris 75004
France

Julien Fouquau

ESCP Business School ( email )

79 avenue de la République
75011
France

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