Estimating the Demand for Reserve Assets Across Diverse Groups of Countries

32 Pages Posted: 5 Jun 2020

See all articles by Rina Bhattacharya

Rina Bhattacharya

International Monetary Fund (IMF)

Katja Mann

Copenhagen Business School

Mwanza Nkusu

International Monetary Fund (IMF)

Date Written: August 2019

Abstract

This paper takes a fresh look at the determinants of the holding of reserves with the aim of highlighting similarities and differences among emerging markets (EMs), advanced economies (AEs), and low‐income countries (LICs). We apply two panel estimation techniques: fixed effects (FE) and common correlated effects pooled mean group (CCEPMG). FE regression results suggest that precautionary savings’ motives, both current account‐ and capital account‐related, are generally the most important determinants of reserves’ holding for all country groups. Nonetheless, there is considerable heterogeneity across country groups and over time. The intertemporal motive, a novelty of this paper, has gained importance everywhere. The CCEPMG results confirm the importance of precautionary motives and suggest that current account motives matter only for EMs and LICs and capital account motives matter for all groups while being more relevant for EMs. The CCEPMG results also point to the importance of taking into account the heterogeneous impact of unobserved common factors that affect coefficient estimates and the dynamic process through which reserves adjust to changes.

Suggested Citation

Bhattacharya, Rina and Mann, Katja and Nkusu, Mwanza, Estimating the Demand for Reserve Assets Across Diverse Groups of Countries (August 2019). Review of International Economics, Vol. 27, Issue 3, pp. 822-853, 2019, Available at SSRN: https://ssrn.com/abstract=3618528 or http://dx.doi.org/10.1111/roie.12399

Rina Bhattacharya (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Katja Mann

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Mwanza Nkusu

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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