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Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets Since the 1980s

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  • Atish R. Ghosh

    (IMF)

  • Jonathan D. Ostry

    (IMF)

  • Charalambos G. Tsangarides

    (IMF)

Abstract

Why have emerging market economies (EMEs) been stockpiling international reserves? We find that motives have varied over time; vulnerability to current account shocks was relatively important in the 1980s but, as EMEs became more financially integrated, factors related to the magnitude of potential capital outflows gained importance. Reserve accumulation as a by-product of undervalued currencies has also become more important since the Asian crisis. Correspondingly, using quantile regressions, we find that the reason for holding reserves varies according to the country’s position in the global reserves distribution. High-reserve holders, who tend to be more financially integrated, are motivated by insurance against capital account rather than current account shocks and are more sensitive to the cost of holding reserves than are low-reserve holders. Currency undervaluation is a significant determinant across the reserves distribution, albeit for different reasons.

Suggested Citation

  • Atish R. Ghosh & Jonathan D. Ostry & Charalambos G. Tsangarides, 2017. "Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets Since the 1980s," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 308-364, June.
  • Handle: RePEc:pal:imfecr:v:65:y:2017:i:2:d:10.1057_s41308-016-0003-3
    DOI: 10.1057/s41308-016-0003-3
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    More about this item

    Keywords

    E58; F15; F31; F43;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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