Open Economies Review

, Volume 20, Issue 4, pp 525–543 | Cite as

The Buffer Stock Model Redux? An Analysis of the Dynamics of Foreign Reserve Accumulation

  • Giulio Cifarelli
  • Giovanna Paladino
Research Article


Cointegration analysis suggests that the buffer stock precautionary model accounts for the optimal reserve demand in nine developing countries located in Asia and Latin America. The corresponding VECMs are further interpolated, using the permanent and transitory innovation decomposition procedure, in order to assess the relative impact of the time series on the convergence to equilibrium after a shock. Finally the (asymmetric) effect on the speed of convergence of positive/negative changes in signal variables—such as the excess reserves of the previous period, relative competitiveness and US monetary stance—is found to be significant, in line with mercantilistic and fear of floating motives for hoarding reserves.


Emerging markets reserves Cointegration P-T components decomposition Asymmetric adjustment 

JEL Classification Numbers

F3 F4 


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Economics DepartmentUniversity of FlorenceFlorenceItaly
  2. 2.Dipartimento di Scienze EconomicheUniversity of FlorenceFlorenceItaly
  3. 3.Economic Research DepartmentIntesa SanpaoloRomeItaly
  4. 4.Economics DepartmentLUISS UniversityRomeItaly

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