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Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model

Author

Listed:
  • Kuk Mo Jung

    () (Department of Economics, Sogang University, Seoul)

  • Ju Hyun Pyun

    () (Korea University Business School,)

Abstract

Using data on 70 emerging countries for 1990-2011, we re-examine the validity of both traditional and recently proposed determinants of international reserves. The dynamic panel model considers panel unit root, endogeneity, and country heterogeneity and reveals that not only traditional determinants but also new financial variables—M2/GDP and foreign capital inflows through over-the-counter markets— have significant effects on reserves hoarding. More importantly, out-of-sample forecasts show that the dynamic model yields the best goodness-of-fit, and its predicted values successfully account for the recent patterns in reserve accumulations.

Suggested Citation

  • Kuk Mo Jung & Ju Hyun Pyun, 2019. "Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model," Working Papers 1904, Research Institute for Market Economy, Sogang University.
  • Handle: RePEc:sgo:wpaper:1904
    as

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    References listed on IDEAS

    as
    1. Pina, Gonçalo, 2015. "The recent growth of international reserves in developing economies: A monetary perspective," Journal of International Money and Finance, Elsevier, vol. 58(C), pages 172-190.
    2. Olivier Jeanne & Romain Rancière, 2011. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," Economic Journal, Royal Economic Society, vol. 121(555), pages 905-930, September.
    3. Andreas Steiner, 2011. "Do dynamics and heterogeneity in panel data models matter?," Empirical Economics, Springer, vol. 40(1), pages 165-176, February.
    4. Lee, Sang Seok & Luk, Paul, 2018. "The Asian Financial Crisis and international reserve accumulation: A robust control approach," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 284-309.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    foreign exchange reserves; dynamic panel estimation; out-of-sample analysis; emerging economies; over-the-counter markets;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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