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Do Exchange Rate Shocks Have Asymmetric Effects on Reserve Accumulation? Evidence from Emerging Markets *
Author(s) -
Chen ShiuSheng,
Lin TzuYu
Publication year - 2019
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12348
Subject(s) - depreciation (economics) , emerging markets , economics , exchange rate , monetary economics , currency , panel data , foreign exchange , monetary policy , international economics , macroeconomics , market economy , econometrics , capital formation , financial capital , human capital
It is generally argued that central banks in emerging market countries, motivated by a desire to defend export competitiveness, tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations. Using panel data from 13 emerging market countries for the period 1998:M1 to 2016:M12, we find that exchange rate shocks play an important role in determining the accumulation of international reserves. Moreover, we find evidence that central banks in emerging markets tend to follow a “leaning against the depreciation wind” policy, rather than the appreciation wind (i.e., we provide evidence of a “fear of depreciation”).