Working Paper: NBER ID: w12718
Authors: Joshua Aizenman; Jaewoo Lee
Abstract: The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism -- subsidizing the cost of capital -- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding, but may be associated with negative externalities leading to competitive hoarding.
Keywords: International reserves; Monetary mercantilism; Financial mercantilism; Precautionary hoarding
JEL Codes: F15; F31; F43; F51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial mercantilism (F30) | economic growth (O49) |
| economic stagnation (P27) | shift to monetary mercantilism (E63) |
| financial mercantilism (F30) | accumulation of international reserves (F32) |
| economic stagnation (P27) | accumulation of international reserves (F32) |
| precautionary hoarding (D14) | monetary mercantilism (E42) |
| competitive hoarding (L12) | negative externalities (D62) |
| regional pooling of reserves (R50) | mitigate adverse effects of competitive hoarding (L12) |