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

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  • Yin-Wong Cheung
  • Xingwang Qian

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.

Suggested Citation

  • Yin-Wong Cheung & Xingwang Qian, 2007. "Hoarding of International Reserves: Mrs Machlup’s Wardrobe and the Joneses," CESifo Working Paper Series 2065, CESifo.
    • Handle: RePEc:ces:ceswps:_2065
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    More about this item

    Keywords

    demand for international reserves; excessive international reserve accumulation; speculative attack; keeping up with the Joneses;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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