What drove the massive hoarding of international reserves? A time-varying approach

International audienceExisting empirical models fail to explain the surge in the accumulation of foreign exchange reserves by emerging countries during the last decade. This paper provides an estimate of the demand for international reserves on a panel of emerging countries using a time-varying panel smooth transition regression (TV-PSTR) model to relax the assumption of coefficient stability in the relationship. Evidence is dound that the parameters are not constant. In addition, it is observed that the coefficients remained relatively stable until 2000 and then increased gradually and strongly thereafter. The specification provided here accounts for an acceleration that linear specifications fail to explain. Finally, it is found that mercantilist motives are the major driver of this acceleration