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Title:Hoarding of international reserves: Mrs Machlup's wardrobe and the joneses PDF Logo
Authors:Cheung, Yin-Wong
Qian, Xingwang
Issue Date:2007
Series/Report no.:CESifo working paper 2065
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.
JEL:F3
F4
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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