The determinants of international reserves in the emerging countries: a nonlinear approach

Anne-Laure Delatte and Julien Fouquau

Applied Economics, 2011, vol. 43, issue 28, 4179-4192

Abstract: In this article, we adopt a nonlinear approach to examine the dynamics of the international reserves holdings by the emerging economies. To do so, we estimate the demand for international reserves with a Panel Smooth Transition Regression (PSTR) model that loosens two restricting hypotheses, homogeneity and time-stability. We find evidence for the presence of a nonlinear behaviour in the demand for international reserves, a result that is new to the literature. The coefficients are found to change smoothly, as a function of two threshold variables - out of five candidates tested in total. Our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain.

Date: 2011
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Related works:
Working Paper: The determinants of International Reserves in the Emerging countries: a non linear approach (2011)
Working Paper: The Determinants of International Reserves in the Emerging Countries: a Non-Linear Approach (2009)
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DOI: 10.1080/00036846.2010.489886

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