The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

International Reserves

  • Joshua Aizenman
Reference work entry


Developing countries, particularly in East Asia, account for most of the large increase in international reserves–GDP ratios in recent decades. Possible explanations include self-insurance against the output costs of sudden stops; precautionary fiscal demand by countries with inelastic fiscal outlays, sovereign risk, volatile and limited tax capacity; and a modern incarnation of mercantilism. Empirical studies reveal that the 1997–8 East Asian financial crisis triggered a sharp increase in hoarding international reserves. They suggest prominent roles for the precautionary demand and self-insurance motives and conclude that the financial integration of developing countries is associated with greater hoarding of international reserves.


Asian miracle Buffer stock model Exchange-rate flexibility Hot money International capital flows International reserves Liquidity crises Option pricing theory Self-insurance 

JEL Classifications

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Joshua Aizenman
    • 1
  1. 1.