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The determinants of international reserves in the emerging countries: a nonlinear approach

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  • Anne-Laure Delatte
  • Julien Fouquau

Abstract

In this article, we adopt a nonlinear approach to examine the dynamics of the international reserves holdings by the emerging economies. To do so, we estimate the demand for international reserves with a Panel Smooth Transition Regression (PSTR) model that loosens two restricting hypotheses, homogeneity and time-stability. We find evidence for the presence of a nonlinear behaviour in the demand for international reserves, a result that is new to the literature. The coefficients are found to change smoothly, as a function of two threshold variables - out of five candidates tested in total. Our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 28 ()
Pages: 4179-4192

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Handle: RePEc:taf:applec:v:43:y:2011:i:28:p:4179-4192

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References

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  1. Joshua Aizenman & Nancy P. Marion, 2002. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," NBER Working Papers 9154, National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 2007. "Capital Controls, Sudden Stops, and Current Account Reversals," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 73-120 National Bureau of Economic Research, Inc.
  3. Fouquau, Julien & Hurlin, Christophe & Rabaud, Isabelle, 2008. "The Feldstein-Horioka puzzle: A panel smooth transition regression approach," Economic Modelling, Elsevier, vol. 25(2), pages 284-299, March.
  4. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
  5. Bessec, Marie & Fouquau, Julien, 2008. "The non-linear link between electricity consumption and temperature in Europe: A threshold panel approach," Energy Economics, Elsevier, vol. 30(5), pages 2705-2721, September.
  6. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 165, Quantitative Finance Research Centre, University of Technology, Sydney.
  7. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  8. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, 06.
  9. Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 41(161), pages 14-24, February.
  10. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056, HAL.
  11. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, Biometrika Trust, vol. 89(2), pages 484-489, June.
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Cited by:
  1. Andrea Fracasso & Giuseppe Vittucci Marzetti, 2012. "International R&D spillovers, absorptive capacity and relative backwardness: a panel smooth transition regression model," Department of Economics Working Papers 1203, Department of Economics, University of Trento, Italia.
  2. Sona Benecka & Lubos Komarek, 2014. "International Reserves: Facing Model Uncertainty," Working Papers 2014/03, Czech National Bank, Research Department.
  3. 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.

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