Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model

Authors

  • Kuk Mo Jung Sogang University, School of Economics, Seoul, South Korea
  • Ju Hyun Pyun Korea University Business School, Seoul, South Korea

DOI:

https://doi.org/10.2298/PAN170330001J

Keywords:

Foreign exchange reserves, Dynamic panel estimation, Out-of-sample analysis, Emerging economies, Over-the-counter markets

Abstract

Using data on 70 emerging countries for 1990-2011, we re-examine the validity of both traditional and recently proposed determinants of international reserves. The dynamic panel model considers panel unit root, endogeneity, and country heterogeneity and reveals that not only traditional determinants but also new financial variables—M2/GDP and foreign capital inflows through over-the-counter markets—have significant effects on reserves hoarding. More importantly, out-of-sample forecasts show that the dynamic model yields the best goodness-of-fit, and its predicted values successfully account for the recent patterns in reserve accumulations. 

Key words: Foreign exchange reserves, Dynamic panel estimation, Out-of-sample analysis, Emerging economies, Over-the-counter markets. 

JEL: C23, E44, E58, F21, F31.

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Published

2020-12-04

How to Cite

Jung, K. M., & Pyun, J. H. (2020). Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model. Panoeconomicus, 67(5), 675–695. https://doi.org/10.2298/PAN170330001J

Issue

Section

Original scientific paper