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International Reserves and Fiscal Policy in Developing Countries

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  • Yan Zhou
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Abstract

This paper investigates empirically the relationship between the pattern of fiscal policy and the demand for international reserves in developing countries, and how this relationship is associated with political risk and conditional access to global capital markets. It finds evidence that for developing countries with low political risk, countercyclical (procyclical) fiscal policies are associated with higher (lower) international reserve holdings in economic downturns. The relationship is stronger when the countries with low political risk rely heavily on external financing. For developing countries with high political risk, the link between reserves holdings and fiscal policy pattern is not clear-cut. Copyright � 2009 The Author. Journal compilation � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 17 (2009)
Issue (Month): 5 (November)
Pages: 942-960

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Handle: RePEc:bla:reviec:v:17:y:2009:i:5:p:942-960

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  1. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "On the Effect of Opportunity Cost on International Reserve Holdings," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 329-32, May.
  2. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  3. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  4. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2004. "The US Current Account Deficit and Economic Development: Collateral for a Total Return Swap," NBER Working Papers 10727, National Bureau of Economic Research, Inc.
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Cited by:
  1. Joshua Aizenman, 2008. "International Reserve Management and the Current Account," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmid (ed.), Current Account and External Financing, edition 1, volume 12, chapter 11, pages 435-474 Central Bank of Chile.
  2. Ilkin Aliyev, 2012. "Is Fiscal Policy Procyclical in Resource-Rich Countries?," CERGE-EI Working Papers wp464, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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