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International cooperation in foreign reserve policies in the presence of competitive hoarding
Author(s) -
Lee Dongwon
Publication year - 2023
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12630
Subject(s) - keeping up with the joneses , hoarding (animal behavior) , economics , externality , investment (military) , welfare , latin americans , endogenous growth theory , international economics , monetary economics , microeconomics , market economy , growth model , human capital , ecology , foraging , biology , linguistics , philosophy , politics , political science , law
This article analyzes the international reserve accumulation behavior of emerging and developing economies facing “keeping‐up‐with‐the‐Joneses” externalities. I first document empirical evidence for a significant Joneses effect, which has been particularly persistent in Asia and Latin America since the late 1990s. This peer‐pressure motive could encourage excess reserve hoarding, providing a rationale for cooperation. I then develop a theoretical model of the borrowing economy featuring the Joneses effect and the interdependence between reserves and domestic capital investment. Numerical results show that international cooperation can effectively internalize negative externalities associated with competitive reserve hoarding and induce welfare‐enhancing resource allocations.