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Regime dependence, Mrs. Machlup's wardrobe and the accumulation of international reserves in Asia

Pontines, Victor and Li, Yongqiang (2011) Regime dependence, Mrs. Machlup's wardrobe and the accumulation of international reserves in Asia. Economics Letters, 110 (3). pp. 231-234. ISSN 0165-1765

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Abstract

The inability of empirical research to reach a robust conclusion as to the possible drivers of reserve accumulation in emerging market economies clearly suggests that the issue is far from settled. In particular, we empirically assess an old theory advanced by Machlup (1966) that offered an interesting analogy between his wife's need for dresses and the insatiable appetite of monetary authorities for international reserves. Machlup observed that regardless of how many dresses that she already possessed, Mrs. Machlup will always have the tendency to get additional dresses to include in her existing stock, and this need depends “on the Joneses with whom she wishes to keep up” (Machlup, 1966, p. 26). The theory epitomizes in the same manner that official international reserves accumulation behavior in Asia and elsewhere is interdependent on the behavior of neighboring or ‘peer’ countries. The existence of a psychological desire to keep up with ‘peer’ countries, or equivalently, against implicit ‘rival countries’ gives rise to a competitive hoarding behavior (Aizenman, 2008). The central theme of this paper is to then examine the validity of the theory on whether monetary authorities for a group of Asian countries exhibit the Mrs. Machlup wardrobe behavior.

Item Type: Article
Uncontrolled Keywords: ResPubID25010, regime dependence, Mrs. Machlup's wardrobe keeping up with the Joneses, accumulation of international reserves, peer countries
Subjects: FOR Classification > 1502 Banking, Finance and Investment
Faculty/School/Research Centre/Department > School of Law
Depositing User: VUIR
Date Deposited: 12 Dec 2012 06:03
Last Modified: 12 Dec 2012 06:03
URI: http://vuir.vu.edu.au/id/eprint/10442
DOI: 10.1016/j.econlet.2010.11.037
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Citations in Scopus: 0 - View on Scopus

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