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Revisiting Mrs. Machlup's wardrobe: the accumulation of international reserves, 1992-2001

  • Graham Bird
  • Alex Mandilaras

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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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 17 (2010)
Issue (Month): 5 ()
Pages: 467-471

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Handle: RePEc:taf:apeclt:v:17:y:2010:i:5:p:467-471
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  1. 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.
  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. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  4. Aizenman, Joshua & Marion, Nancy P., 2003. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Santa Cruz Center for International Economics, Working Paper Series qt9s7978n1, Center for International Economics, UC Santa Cruz.
  5. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-14, June.
  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. Chui, Michael & Gai, Prasanna, 2005. "Private Sector Involvement and International Financial Crises: An Analytical Perspective," OUP Catalogue, Oxford University Press, number 9780199267750.
  8. 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.
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