The high demand for international reserves in the Far East: What is going on?

Aizenman, Joshua; Marion, Nancy Peregrim

doi:10.1016/s0889-1583(03)00008-x

Cited by 229 publications

(140 citation statements)

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“…His empirical study explained that volatility of reserves is really a robust factor that lays high impact on international reserves. Aizenman and Marion (2003) focused on the demand for international reserves in the Far East compared to the demand in other developing countries. Their study found that reserve holdings for the 1980-1996 periods were the outcome of several factors such as: international transactions, international transaction's volatility, the exchange rate arrangement, and political considerations.…”

Section: Literature Reviewmentioning

confidence: 99%

Impact of economic growth on international reserve holdings in Brazil

Kashif

Sridharan

Thiyagarajan

2017

Brazil. J. Polit. Econ.

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RESUMo: Este estudo investigou o impacto do crescimento econômico sobre as reservas internacionais brasileiras no contexto do Mecanismo de Correção de Erros, utilizando dados do período 1980-2014. os resultados revelam que o crescimento econômico é altamente significativo. A partir da estimativa do nosso modelo, argumentamos que o crescimento econômico e as reservas internacionais têm relação positiva de longo prazo. Error correction estimates validated our model for error correction term is negative and statistically significant. Além disso, nosso modo sugere que o crescimento econômico também tem relação de curto prazo. A velocidade de ajuste é mais de 40%, indicando que o termo de correção de erro corrige o desequilíbrio do ano anterior à taxa de 40,4%. PALAVRAS-CHAVE: Brasil; crescimento econômico; modelo de correção de erros; reservas internacionais.ABSTRACT: This study investigated the impact of economic growth on Brazilian international reserves holdings in the context of Error Correction Mechanism using data over the 1980-2014 period. The results reveal that economic growth is highly significant. From the estimation of our model, we argue that economic growth and international reserves have positive long run relationship. Error correction estimates validated our model for error correction term is negative and statistically significant. Besides, our model suggested that economic growth has short run relationship too. The speed of adjustment is more than 40% which indicated that error correction term corrects previous year disequilibrium at the rate of 40.4%.

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Section: Literature Reviewmentioning

confidence: 99%

Impact of economic growth on international reserve holdings in Brazil

Kashif

Sridharan

Thiyagarajan

2017

Brazil. J. Polit. Econ.

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“…Aizenman and Marion (2003) suggest that following the Asian financial crisis, countries in East Asia began to accumulate massive reserves under the precautionary motive. Aizenman and Lee (2007) show that the reserve accumulation by emerging countries is related to variables that reflect the precautionary motive, and that China is not an obvious outlier.…”

Section: The Precautionary Motivementioning

confidence: 99%

“…Many recent studies have attempted either to empirically test or to theoretically explore the motives behind high demand for reserves in the emerging markets (Aizenman and Marion, 2003;Wijnholds and Sondergaard, 2007;Jeanne and Rancière, 2011;Park and Estrada, 2009;Tereanu, 2010;Carroll and Jeanne, 2009;Kim, Shirono, and Dabla-Norris, 2011;Sandri, 2011). Unlike previous studies that focus on achieving a balance between the cost and benefit of holding reserves, the recent literature has turned its attention to the welfare implications of reserve accumulation and to offering an analytical framework based on utility maximisation by rational agents.…”

Section: Introductionmentioning

confidence: 99%

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Accumulation of large foreign reserves in China: a behavioural perspective

Zhang

Chau

Xie

2012

Econ Change Restruct

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The nal publication is available at Springer via http://dx.doi.org/10.1007/s10644-012-9136-1.Additional information: Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. Accumulation of Large Foreign Reserves in China:A behavioural perspective AbstractThe massive accumulation of foreign reserves by China has challenged the conventional thinking about prudent reserve management. This paper develops a behavioural model of optimal decision making under uncertainty to explain the observed Chinese reserve policy. Departing from the conventional approach to utility maximisation based on the agent's rationality, this paper explicitly models the behaviour of Chinese central banker who is influenced by loss aversion and narrow framing. Embedding the cognitive biases into the precautionary savings approach to holding reserves, the paper shows the behavioural optimality of Chinese reserve build-up and provides a plausible explanation of the dynamics of reserve accumulation in China, hence help make sense of the puzzling Chinese reserve policy.

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“…Previous studies on international reserve holdings using pooled cross section and time series data have analyzed the behavior of international reserve holdings using data from developed countries (for instance, Bahmani-Oskooee, 1984Edwards, 1984b;Flood & Marion, 2002;Bahmani-Oskooee & Brown, 2004) and developing countries (for instance, Iyoha, 1976;Edwards, 1984aEdwards, , 1985Aizenman & Marion, 2003;Mendoza, 2004;Zhou, 2005;Ra, 2006). Studies that compare the behavior of international reserve holdings for both developed and developing countries include Frenkel (1980), Bahmani-Oskooee (1987), Lane and Burke (2001), Choi and Beak…”

Section: Introductionmentioning

confidence: 99%

International Reserves, Current Account Imbalance and Short Term External Debt: A Comparative Study

Nor¹,

Azali²,

Law³

2011

IJEF

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This paper examines the behavior of international reserve holdings in East Asia, ASEAN5, and non-ASEAN countries during the period 1970-2005 using panel cointegration and FMOLS. The panel cointegration tests find the existence of long run relationship between international reserve holdings and its determinants. The panel group FMOLS results indicate that current account balance is statistically significant and exert a positive impact on international reserve holdings in East Asia, ASEAN5 and non-ASEAN countries while short term external debt shows a positive and negative impact on international reserve holdings in ASEAN5 and non-ASEAN countries, respectively. Keywords:International reserves, Current account imbalance, Short term external debt, East Asia IntroductionEast Asian economies have been holding high level of international reserves since the 1997 East Asian financial crisis. Among the East Asian countries, China, Japan, Hong Kong, Korea, Malaysia, Taiwan, and Singapore are ranked among the top reserve holders. Even though reserves can provide liquidity and returns, there are several implications associated with high reserve holding. High reserve holdings in these countries in recent years reflect the prudence in their economic policies, high growth prospect, and surplus in their trade accounts. At the same time, high reserves are associated with the global external payments imbalances (World Bank, 2005).The present paper analyzes the behavior of international reserve holdings in three groups of East Asian countries namely East Asia (Indonesia, China, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand), ASEAN5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand), and non-ASEAN countries (China, Japan, Korea, and Taiwan) using panel cointegration and Fully Modified Ordinary Least Squares (FMOLS). The study includes Indonesia, the Philippines, and Thailand because, like the rest of the countries, these ASEAN countries have also increased their international reserve holdings after the crisis.Previous studies on international reserve holdings using pooled cross section and time series data have analyzed the behavior of international reserve holdings using data from developed countries (for instance, Bahmani-Oskooee, 1984Edwards, 1984b;Flood & Marion, 2002;Bahmani-Oskooee & Brown, 2004) and developing countries (for instance, Iyoha, 1976;Edwards, 1984aEdwards, , 1985Aizenman & Marion, 2003;Mendoza, 2004; Zhou, 2005; Ra, 2006). Studies that compare the behavior of international reserve holdings for both developed and developing countries include Frenkel (1980), Bahmani-Oskooee (1987), Lane and Burke (2001) Even though studies by Gosselin and Parent (2005) and Cheung and Xing (2007) have analyzed the behavior of international reserve holdings in the Asian context, comparison between different groups of countries have not been made. Therefore, the study intends to fill up this gap in the literature. The present study also differs from previous studies in a way that it all...

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The high demand for international reserves in the Far East: What is going on?

Cited by 229 publications

References 7 publications

Impact of economic growth on international reserve holdings in Brazil

Impact of economic growth on international reserve holdings in Brazil

Accumulation of large foreign reserves in China: a behavioural perspective

International Reserves, Current Account Imbalance and Short Term External Debt: A Comparative Study

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