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What is Driving Reserve Accumulation? A Dynamic Panel Data Approach

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  • Diego Bastourre
  • Jorge Carrera
  • Javier Ibarlucia

Abstract

Foreign reserve accumulation is a widespread phenomenon of recent years, particularly among emerging economies. Using a panel of 136 countries for the period 1973-2003, we demonstrate the need of using both a dynamic specification of the reserve demand equation and the system GMM estimator. These improvements change the results found by previous studies. Openness, regional imitation, persistence, an inverted U-shaped relationship between reserves and income level, and financial deregulation are the factors driving reserve hoardings. In contrast, reserves yield, and both trade and financial volatility are not statistically significant. Surprisingly, we find that countries with flexible exchange rate regimes have higher ratios of reserves to GDP. This result is robust to alternative exchange rate regime classifications. Copyright © 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Diego Bastourre & Jorge Carrera & Javier Ibarlucia, 2009. "What is Driving Reserve Accumulation? A Dynamic Panel Data Approach," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 861-877, September.
  • Handle: RePEc:bla:reviec:v:17:y:2009:i:4:p:861-877
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    Cited by:

    1. Horacio A. Aguirre, 2011. "On the “Science” of Monetary Policy: Methodological Notes," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(64), pages 83-115, October -.
    2. International Monetary Fund, 2012. "Algeria; Selected Issues Paper," IMF Staff Country Reports 12/22, International Monetary Fund.
    3. repec:kap:empiri:v:45:y:2018:i:1:d:10.1007_s10663-016-9353-3 is not listed on IDEAS
    4. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters,in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
    5. Ä°mre ERSOY, 2011. "On Reserve Hoarding In Emes: The Case Of Turkey," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(3(17)/ Fa), pages 230-243.
    6. Martín Guzmán & Martín Fiszbein, 2011. "Un Marco para el Análisis de los Procesos Macroeconómicos en la obra de Prebisch," Department of Economics, Working Papers 084, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    7. Pierre-Richard Agénor & K. Alper & L. Pereira da Silva, 2015. "External Shocks, Financial Volatility and Reserve Requirements in an Open Economy," Working Papers Series 396, Central Bank of Brazil, Research Department.
    8. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz A., 2014. "Sudden floods, macroprudential regulation and stability in an open economy," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 68-100.
    9. Jäger, Kai, 2016. "The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation," European Journal of Political Economy, Elsevier, vol. 44(C), pages 79-96.
    10. Florian Brugger, 2015. "Asia’s Reserve Accumulation: Part of a New Paradigm," Working Paper Series, Social and Economic Sciences 2015-03, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    11. Jorge Carrera, 2009. "The G20, the Crisis and the Redesign of the International Financial Architecture," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(53-54), pages 217-244, January -.
    12. Philip R. Lane, 2015. "International Financial Flows in Low-Income Countries," Pacific Economic Review, Wiley Blackwell, vol. 20(1), pages 49-72, February.
    13. Alberola, Enrique & Erce, Aitor & Serena, José Maria, 2016. "International reserves and gross capital flows dynamics," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 151-171.
    14. Bussière, Matthieu & Cheng, Gong & Chinn, Menzie D. & Lisack, Noëmie, 2015. "For a few dollars more: Reserves and growth in times of crises," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 127-145.
    15. Florian Brugger, 2016. "Asias Reserve Accumulation: Part of a New Paradigm," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(8), pages 457-476, August.
    16. Enrique Alberola & Aitor Erce & José Maria Serena, 2012. "International reserves and gross capital flows: dynamics during financial stress," Globalization and Monetary Policy Institute Working Paper 110, Federal Reserve Bank of Dallas.
    17. Min B. Shrestha & Theresia A. Wansi, "undated". "Drivers of Reserves Accumulation in the South East Asian Countries," Working Papers wp02, South East Asian Central Banks (SEACEN) Research and Training Centre.
    18. Ghosh, Atish R. & Ostry, Jonathan D. & Tsangarides, Charalambos G., 2014. "Accounting for emerging market countries' international reserves: Are Pacific Rim countries different?," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 52-82.
    19. Daniel Heymann & Adrián Ramos & Horacio Aguirre, 2011. "Inflation and Macroeconomic Policies in Post-convertibility Argentina," Chapters,in: The Economies of Argentina and Brazil, chapter 19 Edward Elgar Publishing.

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