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What is Driving Reserve Accumulation? A Dynamic Panel Data Approach

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  • Diego Bastourre
  • Jorge Carrera
  • Javier Ibarlucia

Abstract

Foreign reserve accumulation is a widespread phenomenon of recent years, particularly among emerging economies. Using a panel of 136 countries for the period 1973-2003, we demonstrate the need of using both a dynamic specification of the reserve demand equation and the system GMM estimator. These improvements change the results found by previous studies. Openness, regional imitation, persistence, an inverted U-shaped relationship between reserves and income level, and financial deregulation are the factors driving reserve hoardings. In contrast, reserves yield, and both trade and financial volatility are not statistically significant. Surprisingly, we find that countries with flexible exchange rate regimes have higher ratios of reserves to GDP. This result is robust to alternative exchange rate regime classifications. Copyright � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 17 (2009)
Issue (Month): 4 (09)
Pages: 861-877

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Handle: RePEc:bla:reviec:v:17:y:2009:i:4:p:861-877

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Cited by:
  1. Reinhart, Carmen & Reinhart, Vincent, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," CEPR Discussion Papers 6996, C.E.P.R. Discussion Papers.
  2. Horacio A. Aguirre, 2011. "On the “Science” of Monetary Policy: Methodological Notes," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(64), pages 83-115, October -.
  3. Jorge Carrera, 2009. "The G20, the Crisis and the Redesign of the International Financial Architecture," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(53-54), pages 217-244, January -.
  4. Min B. Shrestha & Theresia A. Wansi, 2014. "Drivers of Reserves Accumulation in the South East Asian Countries," Working Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number wp02.
  5. Enrique Alberola & Aitor Erce & José Maria Serena, 2012. "International reserves and gross capital flows: dynamics during financial stress," Globalization and Monetary Policy Institute Working Paper 110, Federal Reserve Bank of Dallas.
  6. Martín Guzmán & Martín Fiszbein, 2011. "Un Marco para el Análisis de los Procesos Macroeconómicos en la obra de Prebisch," Department of Economics, Working Papers 084, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.

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