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Estimating the demand for reserve assets across diverse groups of countries

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  • Rina Bhattacharya
  • Katja Mann
  • Mwanza Nkusu

Abstract

This paper takes a fresh look at the determinants of the holding of reserves with the aim of highlighting similarities and differences among emerging markets (EMs), advanced economies (AEs), and low‐income countries (LICs). We apply two panel estimation techniques: fixed effects (FE) and common correlated effects pooled mean group (CCEPMG). FE regression results suggest that precautionary savings’ motives, both current account‐ and capital account‐related, are generally the most important determinants of reserves’ holding for all country groups. Nonetheless, there is considerable heterogeneity across country groups and over time. The intertemporal motive, a novelty of this paper, has gained importance everywhere. The CCEPMG results confirm the importance of precautionary motives and suggest that current account motives matter only for EMs and LICs and capital account motives matter for all groups while being more relevant for EMs. The CCEPMG results also point to the importance of taking into account the heterogeneous impact of unobserved common factors that affect coefficient estimates and the dynamic process through which reserves adjust to changes.

Suggested Citation

  • Rina Bhattacharya & Katja Mann & Mwanza Nkusu, 2019. "Estimating the demand for reserve assets across diverse groups of countries," Review of International Economics, Wiley Blackwell, vol. 27(3), pages 822-853, August.
    • Handle: RePEc:bla:reviec:v:27:y:2019:i:3:p:822-853
    DOI: 10.1111/roie.12399
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    Cited by:

    1. Tenaw, Dagmawe & Beyene, Abebe D., 2021. "Environmental sustainability and economic development in sub-Saharan Africa: A modified EKC hypothesis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    2. Joshua Aizenman & Yothin Jinjarak, 2020. "Hoarding for stormy days—Test of international reserves adjustment providing financial buffer stock services," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 656-675, August.

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