Foreign Reserve Accumulation and the Mercantilist Motive Hypothesis
AbstractA fivefold increase in central bank foreign reserves across the globe over the past fifteen years has prompted the question of whether this constitutes a new form of mercantilism. According to this view, countries accumulate foreign reserves in order to support export promotion by influencing exchange rates and/or to signal relative economic strength as a modern version of bullionism. Using a unique dataset on daily foreign exchange intervention, this paper investigates the mercantilist motive hypothesis for the case of Brazil over the period 2009-2012. The findings support reserve accumulation as a byproduct of successful central bank intervention in the Brazilian foreign exchange market. The results also indicate regional currency intervention spillovers to Brazil’s neighbouring countries, including on their foreign reserve build-ups.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-18.
Length: 41 pages
Date of creation: Feb 2014
Date of revision:
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Foreign exchange intervention; currency intervention; exchange rate volatility; reserve accumulation; factor model; emerging markets;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-15 (All new papers)
- NEP-INT-2014-02-15 (International Trade)
- NEP-MON-2014-02-15 (Monetary Economics)
- NEP-OPM-2014-02-15 (Open Economy Macroeconomics)
- NEP-SOG-2014-02-15 (Sociology of Economics)
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