NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding

Joshua Aizenman, Jaewoo Lee

NBER Working Paper No. 12718
Issued in December 2006
NBER Program(s):   IFM   ITI

The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism -- subsidizing the cost of capital -- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding, but may be associated with negative externalities leading to competitive hoarding.

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This paper was revised on February 27, 2007

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Document Object Identifier (DOI): 10.3386/w12718

Published: Joshua Aizenman & Jaewoo Lee, 2008. "Financial versus Monetary Mercantilism: Long-run View of Large International Reserves Hoarding," The World Economy, Blackwell Publishing, vol. 31(5), pages 593-611, 05. citation courtesy of

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