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.