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Accumulation of Reserves and Keeping Up with the Joneses: The Case of LATAM Economies

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  • Yin-Wong Cheung

    (University of California, Santa Cruz and Hong Kong Institute for Monetary Research)

  • Rajeswari Sengupta

    (University of California, Santa Cruz)

Abstract

In this paper we explore the 'Mrs.Machlup's Wardrobe' hypothesis to understand the growing trend of Latin American economies amassing large stocks of international reserves. Using annual data from 1980 to 2007, we examine the relevance of the argument that economies continue to add to their existing reserves stock in order to keep up with the Joneses. We find strong evidence of presence of the Joneses effect. The effect is robust to the inclusion of traditional determinants of reserve accumulation as well as region specific factors including commodity exports that set the Latin American economies apart from other emerging economies.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 212010.

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Length: 29 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:hkm:wpaper:212010

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Keywords: Demand for International Reserves; ¡¥Mrs. Machlup¡¦s Wardrobe¡¦ Hypothesis; Speculative Attack; Competitive Hoarding; Financial Crisis;

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  1. Yin-Wong Cheung & Guonan Ma & Robert N. McCauley, 2010. "Renminbising China's Foreign Assets," CESifo Working Paper Series 3009, CESifo Group Munich.
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  3. Joshua Aizenman & Daniel Riera-Crichton, 2008. "Real Exchange Rate and International Reserves in an Era of Growing Financial and Trade Integration," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 812-815, November.
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  18. Kelly, Michael G, 1970. "The Demand for International Reserves," American Economic Review, American Economic Association, vol. 60(4), pages 655-67, September.
  19. Yin-Wong Cheung & Xingwang Qian, 2009. "Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 824-843, 09.
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Cited by:
  1. Gorea, Denis & Radev, Deyan, 2014. "The euro area sovereign debt crisis: Can contagion spread from the periphery to the core?," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 78-100.
  2. Chang, Ming-Jen & Chang, Juin-Jen & Shieh, Jhy-Yuan, 2014. "Keeping up with the Joneses and exchange rate volatility in a Redux model," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 569-584.
  3. Dariusz Urban, 2011. "Macroeconomic Considerations and Motives of Sovereign Wealth Funds Activity," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(2), June.

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