The Demand for International Reserves and Exchange Rate Adjustments: The Case of LDCs, 1964-1972
AbstractIn this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of LDC's. It is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than countries that have occasionally used exchange rate adjustments for correcting payments imbalances. The dynamics of the adjustment for both groupsof countries are also analyzed. The results show that while both groups tend to eliminate reserve disequilibria fast, those countries that have maintained a fixed rate tend to do it more slowly than countries that have occasionally devalued their currency. It Is also shown that the year prior to a devaluation, international reserves have been, on average, 30% below their short-run desired level. These results are important since they indicate that not all LDC's should be aggregated for prediction purposes. The results also have implications for the analysis of the adequacy of international reserves in less developed countries.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 50 (1983)
Issue (Month): 199 (August)
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Other versions of this item:
- Sebastian Edwards, 1981. "The Demand for International Reserves and Exchange Rate Adjustments: The Case of LDC's, 1964-1972," UCLA Economics Working Papers 229, UCLA Department of Economics.
- Sebastian Edwards, 1984. "The Demand for International Reserves and Exchange Rate Adjustments: TheCase of LDCs, 1964-1972," NBER Working Papers 1063, National Bureau of Economic Research, Inc.
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