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Financial Versus Monetary Mercantilism

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Author Info

  • Jaewoo Lee
  • Joshua Aizenman

Abstract

The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism-hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism-subsidizing the cost of capital- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from a precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding through its short-term boost to external competitiveness, but may be associated with negative externalities leading to competitive hoarding.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/280.

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Length: 22
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/280

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Related research

Keywords: Foreign exchange reserves; Asia; Export competitiveness; Manufacturing sector; hoarding; international reserves; financial sector; financial fragility; cost of capital; financial repression; international capital; currency crisis; government securities; currency crises; financial market; financial institutions; international capital flows; nominal exchange rate; international standards; overvaluation; liquidity crisis; capital flows; financial contagion; financial stability;

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