Financial Versus Monetary Mercantilism: Long-Run View of the Large International Reserves Hoarding

Jaewoo Lee () and Joshua Aizenman ()

No 06/280, IMF Working Papers from International Monetary Fund

Abstract: The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism-hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism-subsidizing the cost of capital- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from a precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding through its short-term boost to external competitiveness, but may be associated with negative externalities leading to competitive hoarding.

Keywords: Mercantilism; cost of capital; competitive real depreciations; self insurance; precautionary hoarding (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-sea
Date: 2006-12-22
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