## International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence

_IMF Working Papers, October 1, 2005_

## Source details

**Canonical URL:** [International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence](https://www.imf.org/en/publications/wp/issues/2016/12/31/international-reserves-precautionary-vs-18597)

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## Bibliographic details
- Authors: Joshua Aizenman, Jaewoo Lee
- Published: October 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862171.001

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### Summary and central findings
- The paper compares the importance of precautionary and mercantilist motives in the hoarding of international reserves by developing countries.
- Overall, empirical results support precautionary motives.
- A more liberal capital account regime increases international reserves.

### Theoretical contributions
- Large precautionary demand for international reserves arises as a self-insurance to avoid costly liquidation of long-term projects when the economy is susceptible to sudden stops.
- The welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude.

### Empirical implications and interpretation
- Empirical evidence in the paper points toward precautionary demand as a primary driver of reserves accumulation in developing countries.
- Capital account liberalization is empirically associated with higher international reserves holdings.

### Publication metadata and identifiers
- Authors: Joshua Aizenman, Jaewoo Lee
- Publication date: October 1, 2005
- Series: Working Paper No. 2005/198
- Issue: 198
- Volume: 2005
- Pages: 30
- DOI: https://doi.org/10.5089/9781451862171.001
- Stock No: WPIEA2005198
- ISBN: 9781451862171
- ISSN: 1018-5941
- Subject: Capital account liberalization, Export performance, International reserves, Liquidity, Reserves accumulation
- Keywords: precautionary demand, WP
- Citation example provided in source: Joshua Aizenman, and Jaewoo Lee. "International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence", IMF Working Papers 2005, 198 (2005), accessed 9/16/2026, https://doi.org/10.5089/9781451862171.001

*IMF Working Paper: International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence (Working Paper No. 2005/198).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/international-reserves-precautionary-vs-18597_