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Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses

Listed author(s):
  • Yin-Wong Cheung
  • Xingwang Qian

Motivated by the observed international reserve hoarding behavior in the post-1997 crisis period, we explore the Mrs Machlup's Wardrobe hypothesis and the related keeping up with the Joneses argument. It is conceived that, in addition to psychological reasons, holding a relatively high level of international reserves reduces the vulnerability to speculative attacks and promotes growth. A stylized model is constructed to illustrate this type of hoarding behavior. The relevance of the keeping up with the Joneses effect is examined using a few plausible empirical specifications and data from 10 East Asian economies. Panel-based regression results are suggestive of the presence of the Joneses effect, especially in the post-1997 crisis period. Copyright © 2009 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 17 (2009)
Issue (Month): 4 (September)
Pages: 824-843

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Handle: RePEc:bla:reviec:v:17:y:2009:i:4:p:824-843
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