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The Determinants of International Reserves in the Emerging Countries: a Non-Linear Approach

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  • Delatte, Anne-Laure
  • Fouquau, Julien

Abstract

In this paper we adopt a non linear approach to examine the dynamics of the international reserves holdings by the emerging economies. To do so, we estimate the demand for international reserves with a panel smooth transition model, that loosens two restricting hypotheses, homogeneity and time-stability. We find evidence for the presence of a non linear behavior in the demand for international reserves, a result that is new to the literature. The coefficients are found to change smoothly, as a function of two threshold variables- out of seven candidates tested in total. Our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain.

Suggested Citation

  • Delatte, Anne-Laure & Fouquau, Julien, 2009. "The Determinants of International Reserves in the Emerging Countries: a Non-Linear Approach," MPRA Paper 16311, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16311
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    References listed on IDEAS

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    1. González, Andrés & Teräsvirta, Timo & van Dijk, Dick & Yang, Yukai, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics, revised 11 Oct 2017.
    2. Fouquau, Julien & Hurlin, Christophe & Rabaud, Isabelle, 2008. "The Feldstein-Horioka puzzle: A panel smooth transition regression approach," Economic Modelling, Elsevier, vol. 25(2), pages 284-299, March.
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    Citations

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    Cited by:

    1. Po-Chin Wu & Chung-Chih Lee, 2018. "The non-linear impact of monetary policy on international reserves: macroeconomic variables nexus," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 165-185, February.
    2. Benecká, Soňa & Komarek, Lubos, 2018. "International reserves: Facing model uncertainty," Economic Systems, Elsevier, vol. 42(3), pages 523-531.
    3. Cristian Camilo Porras-Alarcón, 2020. "Una aproximación a los determinantes de acumulación de reservas internacionales en economías emergentes," Borradores de Economia 1126, Banco de la Republica de Colombia.
    4. Andrea Fracasso & Giuseppe Vittucci Marzetti, 2014. "International R&D Spillovers, Absorptive Capacity and Relative Backwardness: A Panel Smooth Transition Regression Model," International Economic Journal, Taylor & Francis Journals, vol. 28(1), pages 137-160, March.
    5. Wang, Huiqing & Wei, Weixian, 2020. "Coordinating technological progress and environmental regulation in CO2 mitigation: The optimal levels for OECD countries & emerging economies," Energy Economics, Elsevier, vol. 87(C).
    6. Luis Cabezas & José De Gregorio, 2018. "Accumulation of Reserves in Emerging and Developing Countries: Mercantilism vs. Insurance," Working Papers wp467, University of Chile, Department of Economics.
    7. Li, Guangchen & Wei, Weixian, 2021. "Financial development, openness, innovation, carbon emissions, and economic growth in China," Energy Economics, Elsevier, vol. 97(C).
    8. Min B. Shrestha & Theresia A. Wansi, 2014. "Drivers of Reserves Accumulation in the South East Asian Countries," Working Papers wp02, South East Asian Central Banks (SEACEN) Research and Training Centre.
    9. Luis Cabezas & José Gregorio, 2019. "Accumulation of reserves in emerging and developing countries: mercantilism versus insurance," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(4), pages 819-857, November.
    10. Anne-Laure Delatte & Julien Fouquau, 2012. "Le retour des motifs mercantilistes dans la demande de réserves internationales des pays émergents," Revue économique, Presses de Sciences-Po, vol. 63(5), pages 1013-1023.
    11. Miss Nkunde Mwase, 2012. "How much should I hold? Reserve Adequacy in Emerging Markets and Small Islands," IMF Working Papers 2012/205, International Monetary Fund.

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    More about this item

    Keywords

    International Reserves; Precautionary Demand; Mercantilist; Global Imbalances; Panel Smooth Threshold Regression Models.;
    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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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