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The Determinants of International Reserves in the Emerging Countries: a Non-Linear Approach

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Author Info
Delatte, Anne-Laure
Fouquau, Julien

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Abstract

In this paper we adopt a non linear approach to examine the dynamics of the international reserves holdings by the emerging economies. To do so, we estimate the demand for international reserves with a panel smooth transition model, that loosens two restricting hypotheses, homogeneity and time-stability. We find evidence for the presence of a non linear behavior in the demand for international reserves, a result that is new to the literature. The coefficients are found to change smoothly, as a function of two threshold variables- out of seven candidates tested in total. Our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16311.

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Date of creation: Jun 2009
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Handle: RePEc:pra:mprapa:16311

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Related research
Keywords: International Reserves; Precautionary Demand; Mercantilist; Global Imbalances; Panel Smooth Threshold Regression Models.;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. Bessec, Marie & Fouquau, Julien, 2008. "The non-linear link between electricity consumption and temperature in Europe: A threshold panel approach," Energy Economics, Elsevier, vol. 30(5), pages 2705-2721, September. [Downloadable!] (restricted)
  2. Joshua Aizenman & Nancy Marion, 2004. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Economic Journal, Royal Economic Society, vol. 114(497), pages 569-591, 07. [Downloadable!] (restricted)
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  3. Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, vol. 41(161), pages 14-24, February. [Downloadable!] (restricted)
  4. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  5. Fouquau, Julien & Hurlin, Christophe & Rabaud, Isabelle, 2008. "The Feldstein-Horioka puzzle: A panel smooth transition regression approach," Economic Modelling, Elsevier, vol. 25(2), pages 284-299, March. [Downloadable!] (restricted)
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  6. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Blackwell Publishing, vol. 26(6), pages 873-891, 06. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. Gilbert Colletaz & Christophe Hurlin, 2006. "Threshold Effects of the Public Capital Productivity : An International Panel Smooth Transition Approach," Working Papers halshs-00008056_v1, HAL. [Downloadable!]
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