Foreign Reserve Accumulation and the Mercantilist Motive Hypothesis

Patrick Carvalho and Renee Fry-McKibbin

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: A fivefold increase in central bank foreign reserves across the globe over the past fifteen years has prompted the question of whether this constitutes a new form of mercantilism. According to this view, countries accumulate foreign reserves in order to support export promotion by influencing exchange rates and/or to signal relative economic strength as a modern version of bullionism. Using a unique dataset on daily foreign exchange intervention, this paper investigates the mercantilist motive hypothesis for the case of Brazil over the period 2009-2012. The findings support reserve accumulation as a byproduct of successful central bank intervention in the Brazilian foreign exchange market. The results also indicate regional currency intervention spillovers to Brazil’s neighbouring countries, including on their foreign reserve build-ups.

Keywords: Foreign exchange intervention; currency intervention; exchange rate volatility; reserve accumulation; factor model; emerging markets (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-02
New Economics Papers: this item is included in nep-int, nep-mon, nep-opm and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-18

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