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International Reserve Management under Rollover Crises

Author

Listed:
  • Mauricio Barbosa-Alves

    (University of Minnesota)

  • Javier Bianchi

    (Federal Reserve Bank of Minneapolis)

  • César Sosa-Padilla

    (University of Notre-Dame/NBER)

Abstract

This paper investigates how a government should manage international reserves whenit faces the risk of a rollover crisis. We ask, should the government accumulate reservesor reduce debt to make itself less vulnerable? We show that the optimal policy entailsinitially reducing debt, followed by a subsequent increase in both debt and reserves asthe government approaches a safe zone. Furthermore, we uncover that issuing additionaldebt to accumulate reserves can lead to a reduction in sovereign spreads.

Suggested Citation

  • Mauricio Barbosa-Alves & Javier Bianchi & César Sosa-Padilla, 2024. "International Reserve Management under Rollover Crises," Working Papers 321, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:321
    as

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    File URL: https://rednie.eco.unc.edu.ar/files/DT/321.pdf
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    References listed on IDEAS

    as
    1. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    2. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International reserves; sovereign debt; rollover crises.;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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