Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model

32 Pages Posted: 3 Dec 2018

See all articles by Kuk Mo Jung

Kuk Mo Jung

Henan University

Ju Hyun Pyun

Korea University Business School (KUBS)

Date Written: November 1, 2018

Abstract

Using data on 70 emerging countries for 1990-2011, we re-examine the validity of both traditional and recently proposed determinants of international reserves. The dynamic panel model considers panel unit root, endogeneity, and country heterogeneity and reveals that not only traditional determinants but also new financial variables — M2/GDP and foreign capital inflows through over-the-counter markets — have significant effects on reserves hoarding. More importantly, out-of-sample forecasts show that the dynamic model yields the best goodness-of-fit, and its predicted values successfully account for the recent patterns in reserve accumulations.

Keywords: foreign exchange reserves, dynamic panel estimation, out-of-sample analysis, emerging economies, over-the-counter markets

JEL Classification: C23, E44, E58, F21, F31

Suggested Citation

Jung, Kuk Mo and Pyun, Ju Hyun, Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model (November 1, 2018). Available at SSRN: https://ssrn.com/abstract=3108516 or http://dx.doi.org/10.2139/ssrn.3108516

Kuk Mo Jung

Henan University ( email )

85 Minglun St. Shunhe
Kaifeng, CA Henan 475001
China

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

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