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Demand for International Reserves: A Quantile Regression Approach

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  • Sula, Ozan

Abstract

I estimate the determinants of the demand for international reserves using quantile regressions. Employing a dataset of 96 developing nations over the period of 1980-1996, I find considerable differences at different points of the conditional distribution of reserves. The ordinary least squares estimates of elasticities that were found to be insignificant in previous studies become statistically significant at various quantiles of the reserve holding distribution. In particular, I find that the coefficients of interest rate differential and volatility of export receipts are significant and have the signs predicted by the traditional reserve models, but only for those nations that hold the highest amount of reserves. In contrast, the flexibility of the exchange rate does not seem to be an important factor for the nations that are located at the tails of the distribution.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11680.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:11680

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Keywords: International reserves; Quantile regression; Demand for reserves; Reserve policy;

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  1. Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
  2. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521608275.
  3. Aizenman, Joshua, 1998. "Buffer stocks and precautionary savings with loss aversion," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(6), pages 931-947, December.
  4. Grubel, Herbert G, 1971. "The Demand for International Reserves: A Critical Review of the Literature," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1148-66, December.
  5. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(362), pages 507-14, June.
  6. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  7. Joshua Aizenman & Nancy Marion, 2004. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(497), pages 569-591, 07.
  8. Omar Arias & Walter Sosa-Escudero & Kevin F. Hallock, 2001. "Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data," Empirical Economics, Springer, Springer, vol. 26(1), pages 7-40.
  9. Claassen, Emil-Maria, 1975. "Demand for International Reserves and the Optimum Mix and Speed of Adjustment Policies," American Economic Review, American Economic Association, American Economic Association, vol. 65(3), pages 446-53, June.
  10. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, Elsevier, vol. 33(3-4), pages 345-362, November.
  11. Bar-Ilan, Avner & Marion, Nancy P. & Perry, David, 2007. "Drift control of international reserves," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(9), pages 3110-3137, September.
  12. Kelly, Michael G, 1970. "The Demand for International Reserves," American Economic Review, American Economic Association, American Economic Association, vol. 60(4), pages 655-67, September.
  13. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  14. Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
  15. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
  16. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "On the Effect of Opportunity Cost on International Reserve Holdings," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 329-32, May.
  17. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 91(1), pages 74-89, October.
  18. Jaewoo Lee, 2004. "Insurance Value of International Reserves," IMF Working Papers 04/175, International Monetary Fund.
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Cited by:
  1. Luis Fernando Gamboa & Mauricio Rodríguez-Acosta & Andrés Felipe García-Suaza, 2010. "Academic achievement in sciences: the role of preferences and educative assets," DOCUMENTOS DE TRABAJO 006701, UNIVERSIDAD DEL ROSARIO.

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