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Turning over a golden leaf? Global liquidity and emerging market central banks’ demand for gold after the financial crisis

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  • Gopalakrishnan, Balagopal
  • Mohapatra, Sanket

Abstract

The quantity of gold reserves held by central banks in emerging markets and developing economies (EMDEs) has risen sharply in the years following the global financial crisis of 2008. EMDE central banks’ gold holdings rose in both absolute terms and as a share of GDP across the developing regions and in most of the EMDE countries, suggesting a pervasive phenomenon. Using a dynamic panel data model, we find that expansion of central bank balance sheets in the advanced economies and increase in global liquidity are robustly related to the post-crisis increase in EMDE gold reserves, after controlling for domestic factors and changes in the global risk environment. This finding is robust to different model specifications, inclusion of additional covariates, and alternative estimation methods. We argue that quantitative easing undertaken by central banks in the advanced economies resulted in a search for alternative safe assets such as gold, which may explain the continued accumulation of EMDE gold reserves even after the peak of the financial crisis.

Suggested Citation

  • Gopalakrishnan, Balagopal & Mohapatra, Sanket, 2018. "Turning over a golden leaf? Global liquidity and emerging market central banks’ demand for gold after the financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 94-109.
  • Handle: RePEc:eee:intfin:v:57:y:2018:i:c:p:94-109
    DOI: 10.1016/j.intfin.2018.07.002
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    More about this item

    Keywords

    Gold reserves; Emerging markets; Central banks; Quantitative easing; Safe assets;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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