 A simple model of emerging market portfolio structureInternational Review of Economics & Finance, 2009, vol. 18, issue 3, 457-468 Abstract: Many emerging market economies have experienced large buildups of foreign exchange rate reserves over the last decade. Much of the contemporary discussion of this phenomenon has focused on this reserve growth as the consequence of exchange rate policies which have maintained fixed pegs to the US dollar. By contrast, this paper focuses on emerging market reserve choice as a consequence of portfolio diversification, applied to the experience of Asian economies. While Asian economies have become significant gross creditors in bonds and other fixed income assets, their liability position in equity and FDI assets has also grown significantly. This suggests that a full understanding of the reserve growth episode must be seen as part of an overall model of portfolio choice. The paper constructs a model of the interaction between an emerging market and an advanced economy in which an optimal general equilibrium portfolio structure implies that emerging market economies simultaneously build up a stock of foreign exchange rate reserves while receiving FDI flows from the advanced economy. The model can provide a reasonable quantitative account of the recent Asian experience. Keywords: Asia; Financial; globalization; FDI; Foreign; exchange; rate; reserves (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:18:y:2009:i:3:p:457-468 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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