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

No 2065, CESifo Working Paper Series from CESifo

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 10 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: F30 F40 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (31)

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Journal Article: Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses (2009)
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