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

26 Pages Posted: 6 Dec 2006 Last revised: 19 Apr 2007

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: December 2006

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.

Suggested Citation

Aizenman, Joshua and Lee, Jaewoo, Financial Versus Monetary Mercantilism-Long-Run View of Large International Reserves Hoarding (December 2006). NBER Working Paper No. w12718. Available at SSRN: https://ssrn.com/abstract=948180

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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