Precautionary Demand for Foreign Assets in Sudden Stop Economies An Assessment of the New Merchantilism

Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops in the 1990s. The surge in foreign reserves since then is viewed as a New Merchantilism in which reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this argument...

Full description

Bibliographic Details
Main Author: Mendoza, Enrique
Other Authors: Durdu, Ceyhun Bora, Terrones, Marco
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2007
Series:IMF Working Papers
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops in the 1990s. The surge in foreign reserves since then is viewed as a New Merchantilism in which reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this argument using a framework in which precautionary savings affect foreign assets via business cycle volatility, financial globalization, and endogenous Sudden Stops. Our results show that financial globalization and Sudden Stop risk are plausible explanations of the surge in reserves but cyclical volatility, which has declined in the globalization period, is not
Physical Description:54 pages
ISBN:9781451867107