International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence

This paper tests the importance of precautionary and mercantilist motives in accounting for the hoarding of international reserves by developing countries, and provides a model that quantifies the welfare gains from optimal management of international reserves. While the variables associated with the mercantilist motive are statistically significant, their economic importance in accounting for reserve hoarding is close to zero and is dwarfed by other variables. Overall, the empirical results are in line with the precautionary demand. The effects of financial crises have been localized, increasing reserve hoarding in the aftermath of crises mostly in countries located in the affected region, but not in other regions. We also investigate the micro foundation of precautionary demand, extending Diamond and Dybvig (1983)'s model to an open, emerging market economy where banks finance long-term projects with short-term deposits. We identify circumstances that lead to large precautionary demand for international reserves, providing self-insurance against the adverse output effects of sudden stop and capital flight shocks. This would be the case if premature liquidation of long-term projects is costly, and the economy is de-facto integrated with the global financial system, hence sudden stops and capital flight may reduce deposits sharply. We show that 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.

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

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.

International Reserves Management and Capital Mobility in a Volatile World: Policy Considerations and a Case Study of Korea

This paper characterizes the precautionary demand for international reserves driven by the attempt to reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It validates the main predictions of the precautionary approach by investigating changes in the patterns of international reserves in Korea in the aftermath of the 1997-8 crisis. This crisis provides an interesting case study, especially because of the rapid rise in Korea's financial integration in the aftermath of the East-Asian crisis, where foreigners' shareholding has increased to 40% of total Korean market capitalization. We show that the crisis led to structural change in the hoarding of international reserves, and that the Korean monetary authority gives much greater attention to a broader notion of 'hot money,' inclusive of short-term debt and foreigners' shareholding.

Experimental Analysis On The Effects Of Superficial Liquid And Gas Velocities In The Removal Of Hydrogen Sulfide From A Brine/oil Mixture

Hydrogen Sulfide (H2S) is a harmful gas produced during petroleum extraction that leads to corrosion of drilling tools and pipelines. However, a H2S-scavenging liquid compound, when added to pipelines, interacts with liquids that absorbed H2S to create a non-corrosive bi-product. The interaction is associated with the mixing of gases and liquids. This thesis is a study on the effect of superficial gas and liquid velocities on the scavenger\u27s efficiency. This study employs two experimental setups designed to simulate the mixing of gases and liquids within pipelines. A high pressure closed loop was designed and fabricated to determine the influence of gas, liquid velocities and liquid volume on the scavenger\u27s efficiency. All experiments were conducted in this high pressure loop with a thousand feet of coiled tubing to simulate the horizontal section of the pipeline that runs along the ocean floor from the reservoir. This provided practical understanding to petroleum companies to make a better forecast of how the scavenger used in eliminating the H2S, is affected in the process of transporting the liquids and gases from the reservoir to the surface. For an adequate analysis, experiments on four liquid and four gas velocities ranging from 0.2m/s to 0.5m/s and 0.4m/s to 1.1m/s respectively were conducted. Results in this study indicated that increases in superficial gas velocity at low superficial liquid velocity decreases the scavenger efficiency while the opposite is seen at high superficial liquid velocity. In addition, the H2S mass absorption was not a function of liquid volume as would be seen in static reservoirs but more of a function of superficial liquid and gas velocities. With the scavenger interacting with the liquid absorbed H2S, it was expected that the efficiency would increase with the increase in volume but in this study this was not the case. The second experiment is a flow visualization loop which was designed to understand the flow regimes at high pressures. This was done by constructing four 25ft section hoses together with four foot long breaks for visualization. This provided a more fundamental study of the fluid\u27s behavior inside the pipelines allowing for the creation of appropriate flow regime maps in air-water flow. A hundred experiments for two different pressures were conducted at the 25ft location. At high pressures, the flow regime map appeared to shift the transition zones

Interpretable Categorization of Heterogeneous Time Series Data

Understanding heterogeneous multivariate time series data is important in many applications ranging from smart homes to aviation. Learning models of heterogeneous multivariate time series that are also human-interpretable is challenging and not adequately addressed by the existing literature. We propose grammar-based decision trees (GBDTs) and an algorithm for learning them. GBDTs extend decision trees with a grammar framework. Logical expressions derived from a context-free grammar are used for branching in place of simple thresholds on attributes. The added expressivity enables support for a wide range of data types while retaining the interpretability of decision trees. In particular, when a grammar based on temporal logic is used, we show that GBDTs can be used for the interpretable classi cation of high-dimensional and heterogeneous time series data. Furthermore, we show how GBDTs can also be used for categorization, which is a combination of clustering and generating interpretable explanations for each cluster. We apply GBDTs to analyze the classic Australian Sign Language dataset as well as data on near mid-air collisions (NMACs). The NMAC data comes from aircraft simulations used in the development of the next-generation Airborne Collision Avoidance System (ACAS X).Comment: 9 pages, 5 figures, 2 tables, SIAM International Conference on Data Mining (SDM) 201