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Revisiting Mrs. Machlup's Wardrobe: The Accumulation of International Reserves, 1992-2001

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  • Graham Bird

    (University of Surrey)

  • Alex Mandilaras

    (University of Surrey)

Abstract

A fature of the late 1990s was the accumulation of International reserves in many countries. Against the background of this phenomenon, in what follows we investigate the following questions: how widely has the tendency to accumulate reserves been seen? Does the incidence of a currency crisis increase the subsequent demand for reserves? Do countries make choices between different combinations of exchange rate regime and reserve holding? Does an arrangement with the IMF encourage countries subsequently to build up reserves more than they otherwise would have done? Do different patterns emerge depending upon the measure of reserves used? In addressing the above questions, we find significant support for the 'Mrs. Machlup's Wardrobe Theory' of international reserves, which purports that irrespective of the amount of reserves countries have accumulated, they continue to add to their stock.

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Bibliographic Info

Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 1207.

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Length: 13 pages
Date of creation: 2007
Date of revision:
Publication status: Forthcoming in Applied Economics Letters
Handle: RePEc:sur:surrec:1207

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Keywords: international reserves;

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  2. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  3. Clark, Peter B, 1970. "Optimum International Reserves and the Speed of Adjustment," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 356-76, March-Apr.
  4. 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.
  5. Chui, Michael & Gai, Prasanna, 2005. "Private Sector Involvement and International Financial Crises: An Analytical Perspective," OUP Catalogue, Oxford University Press, number 9780199267750, October.
  6. Alex Mourmouras & Anna Ivanova & George C. Anayotos & Wolfgang Mayer, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 03/8, International Monetary Fund.
  7. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-14, June.
  8. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
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Cited by:
  1. Graham Bird & Alex Mandilaras, 2011. "Once Bitten: The Effect of IMF Programs on Subsequent Reserve Behavior," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 264-278, 05.
  2. Joseph Joyce & Raul Razo-Garcia, 2011. "Reserves, quotas and the demand for international liquidity," The Review of International Organizations, Springer, vol. 6(3), pages 393-413, September.

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