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

Author

Listed:
  • Yin-wong Cheung

    (University of California, Santa Cruz)

  • XingWang Qian

    (University of California, Santa Cruz)

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.

Suggested Citation

  • Yin-wong Cheung & XingWang Qian, 2007. "Hoarding of International Reserves: Mrs Machlup¡¦s Wardrobe and the Joneses," Working Papers 132007, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:132007
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    References listed on IDEAS

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    Cited by:

    1. Wong, Clement Yuk-pang & Cheung, Yin-Wong, 2008. "Are All Measures of International Reserves Created Equal? An Empirical Comparison of International Reserve Ratios," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-61.
    2. Scholastica A. Abuh-Amasi & Nsikak J. Joshua & Margaret O. Onoyom, 2022. "Determinants of International Reserves in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(5), pages 287-297, May.
    3. Kubota, Megumi, 2011. "Assessing real exchange rate misalignments," Policy Research Working Paper Series 5925, The World Bank.
    4. Joshua Aizenman, 2008. "Large Hoarding Of International Reserves And The Emerging Global Economic Architecture," Manchester School, University of Manchester, vol. 76(5), pages 487-503, September.
    5. Joshua Aizenman, 2010. "Macro Prudential Supervision in the Open Economy, and the Role of Central Banks in Emerging Markets," Open Economies Review, Springer, vol. 21(3), pages 465-482, July.
    6. Yuko Hashimoto, 2008. "Too Much for Self-Insurance? Asian Foreign Reserves," Working Papers 062008, Hong Kong Institute for Monetary Research.
    7. repec:dau:papers:123456789/6913 is not listed on IDEAS

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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:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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