 Does Reserve Accumulation Crowd Out Investments?Carmen Reinhart, Vincent Reinhart and Takeshi Tashiro Working Paper Series from Harvard University, John F. Kennedy School of Government Abstract: It is understood that investment serves as a shock absorber in times of crisis. The duration of the drag on investment, however, is perplexing. For the Asian economies we study, average investment/GDP is about 6 percentage points lower during 1998-2014 than its average level in the decade before the Asian crisis; the decline is greater if China is excluded. We document how in the wake of crisis home bias in finance increases markedly as public and private sectors look inward when external financing becomes prohibitively costly or undesirable from a financial stability perspective. Reserve accumulation involves an official institution (i.e., the central bank) funneling domestic saving abroad and thus competing with domestic borrowers in the market for loanable funds. We suggest a broader definition of crowding out and leakages, driven importantly by rising home bias in finance and by official capital outflows. We present evidence from Asia and advanced European economies with managed currencies to support this interpretation. JEL-codes: E20 F30 F40 F50 G15 H60 (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:ecl:harjfk:rwp15-038 Access Statistics for this paper More papers in Working Paper Series from Harvard University, John F. Kennedy School of Government Contact information at EDIRC. |
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