Hoarding of International Reserves: Mrs Machlup¡¦s Wardrobe and the Joneses

Yin-Wong Cheung and Xingwang Qian

No 132007, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Motivated by the observed international reserve hoarding behavior in the post-1997 crisis period, we explore the Mrs Machlup's wardrobe hypothesis and the related keeping up with the Joneses argument. It is conceived that, in addition to psychological reasons, holding a relatively high level of international reserves reduces the vulnerability to speculative attacks and promotes growth. A stylized model is constructed to illustrate this type of hoarding behavior. The relevance of the keeping up with the Joneses effect is examined using a few plausible empirical specifications and data from ten East Asian economies. Panel-based regression results are suggestive of the presence of the Joneses effect; especially in the post-1997 crisis period. Individual economy estimation results, however, show that the Joneses effect varies across economies.

Keywords: Demand for International reserves; Excessive International reserve Accumulation; Speculative Attack; Keeping Up with the Joneses (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2007-07
New Economics Papers: this item is included in nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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