Accumulation of reserves and keeping up with the Joneses: the case of LATAM economies

Cheung, Yin-Wong and Sengupta, Rajeswari (2010): Accumulation of reserves and keeping up with the Joneses: the case of LATAM economies. Published in: International Review of Economics and Finance , Vol. 2011, No. 20 (23 July 2010): pp. 19-31.

Abstract

In this paper we explore the ‘Mrs. Machlup's Wardrobe’ hypothesis to understand the growing trend of Latin American economies amassing large stocks of international reserves. Using annual data from 1980 to 2007, we examine the relevance of the argument that economies continue to add to their existing reserves stock in order to keep up with the Joneses. We find strong evidence of presence of the Joneses effect. The effect is robust to the inclusion of traditional determinants of reserve accumulation as well as region specific factors including commodity exports that set the Latin American economies apart from other emerging economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Demand for international reserves; ‘Mrs. Machlup's Wardrobe’ hypothesis; Speculative attack; Competitive hoarding Financial crisis
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F3 - International Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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