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Understanding the Recent Surge in the Accumulation of International Reserves

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  • Petar Vujanovic
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    Abstract

    This paper looks at the empirical determinates of foreign currency reserve holdings across a panel of around 130 countries between 1980 and 2008. The paper builds on the existing literature by adopting a panel error-correction model specification and by extending the sample to include the recent period that saw a continuing acceleration in the accumulation of reserves in many countries. The results of the analysis suggest that the levels of trade and domestic financial depth are robust determinates of the level of reserves in the long run, particularly over the past decade and a half. The estimations also find that changes in GDP, the exchange rate regime, exchange rate volatility, and financial openness can all have permanent one-off effects on the level of reserves. Furthermore, country fixed effects are found to be significant, suggesting that time-invariant country specific factors are important in explaining the variance in reserve holdings across countries. Nevertheless, several countries stick out in terms of holding reserves well in excess of that implied by these empirical results, above all in recent years. Among these countries, China and Japan are particularly notable, especially when the deviation from average behaviour is expressed in dollar terms. Comprendre la récente accélération de l'accumulation de réserves internationales Ce document est consacré à l’étude des déterminants économétriques des réserves de change de 1980 à 2008 à partir d’un panel de quelque 130 pays. Il s’appuie sur les publications existantes en adoptant un modèle à correction d’erreurs sur données de panel et en élargissant l’échantillon de façon à couvrir la période récente qui a été marquée par une accélération continue de l’accumulation de réserves dans de nombreux pays. Les résultats de l’analyse tendent à montrer que le volume des échanges commerciaux et la profondeur du système financier national sont des déterminants robustes du volume des réserves sur le long terme, en particulier depuis une quinzaine d’années. Les estimations permettent aussi de constater que des changements en matière de PIB, de régime de change, d’instabilité des cours de change ou d’ouverture financière sont autant de facteurs ponctuels qui peuvent produire un effet permanent sur le volume des réserves. En outre, on observe des effets fixes significatifs spécifiques aux pays, ce qui suggère que des facteurs spécifiques à des pays et invariants dans le temps sont importants pour expliquer la variance des réserves de change entre différents pays. Néanmoins, plusieurs pays continuent à détenir des réserves très supérieures à ce qu’impliquent ces résultats économétriques, surtout ces dernières années. Parmi ces pays, on retiendra en particulier la Chine et le Japon, surtout lorsque l’on exprime en dollars l’écart que présentent ces pays avec le comportement moyen.

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    File URL: http://dx.doi.org/10.1787/5kgc6tdfsblp-en
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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 866.

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    Date of creation: 24 May 2011
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    Handle: RePEc:oec:ecoaaa:866-en

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    Keywords: trade; current account; crisis; central banks; reserves; foreign currency; money supply; sudden stop; balance courante; banque centrale; crise; échanges commerciaux; réserves; changes; masse monétaire; arrêt brutal;

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