Motivated by the observed international reserve hoarding behavior in the post-1997 crisis period, we explore the Mrs Machlup's wardrobe hypothesis and the related keeping up with the Joneses argument. It is conceived that, in addition to psychological reasons, holding a relatively high level of international reserves reduces the vulnerability to speculative attacks and promotes growth. A stylized model is constructed to illustrate this type of hoarding behavior. The relevance of the keeping up with the Joneses effect is examined using a few plausible empirical specifications and data from ten East Asian economies. Panel-based regression results are suggestive of the presence of the Joneses effect; especially in the post-1997 crisis period. Individual economy estimation results, however, show that the Joneses effect varies across economies.
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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number
132007.
Length: 48 pages Date of creation: Jul 2007 Date of revision: Handle: RePEc:hkm:wpaper:132007
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Find related papers by JEL classification: F3 - International Economics - - International Finance F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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