Contingent Reserves Management: an Applied Framework
AbstractOne of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden-stop mechanism. We illustrate this point with a simple quantitative hedging model, where optimally used options and futures on the S&P100’s implied volatility index (VIX), increase the expected reserves available during sudden stops by as much as 40 percent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Central Bank of Chile in its journal Economía Chilena.
Volume (Year): 8 (2005)
Issue (Month): 2 (August)
Other versions of this item:
- Ricardo Caballero & Stavros Panageas, 2006. "Contingent Reserves Management: An Applied Framework," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 12, pages 399-420 Central Bank of Chile.
- Ricardo Caballero & Stavros Panageas, 2005. "Contingent Reserves Management: An Applied Framework," Working Papers Central Bank of Chile 329, Central Bank of Chile.
- Ricardo J. Caballero & Stavros Panageas, 2004. "Contingent Reserves Management: An Applied Framework," NBER Working Papers 10786, National Bureau of Economic Research, Inc.
- Ricardo Caballero & Stavros Panageas, 2004. "Contingent reserves management: an applied framework," Working Papers 05-2, Federal Reserve Bank of Boston.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- G0 - Financial Economics - - General
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caballero, Ricardo J. & Panageas, Stavros, 2008.
"Hedging sudden stops and precautionary contractions,"
Journal of Development Economics,
Elsevier, vol. 85(1-2), pages 28-57, February.
- Ricardo J. Caballero & Stavros Panageas, 2003. "Hedging Sudden Stops and Precautionary Contractions," NBER Working Papers 9778, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2003.
"Inflation Targeting and Sudden Stops,"
NBER Working Papers
9599, National Bureau of Economic Research, Inc.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Jaewoo Lee, 2004. "Insurance Value of International Reserves," IMF Working Papers 04/175, International Monetary Fund.
- Laurence M. Ball & Niamh Sheridan, 2004.
"Does Inflation Targeting Matter?,"
in: The Inflation-Targeting Debate, pages 249-282
National Bureau of Economic Research, Inc.
- Niamh Sheridan & Laurence M. Ball, 2003. "Does Inflation Targeting Matter?," IMF Working Papers 03/129, International Monetary Fund.
- Laurence Ball & Niamh Sheridan, 2003. "Does Inflation Targeting Matter?," NBER Working Papers 9577, National Bureau of Economic Research, Inc.
- Laurence Ball & Niamh Sheridan, 2004. "Does inflation targeting matter?," DNB Staff Reports (discontinued) 118, Netherlands Central Bank.
- Pablo García & Claudio Soto, 2004.
"Large Hoardings of International Reserves: Are They Worth It?,"
Working Papers Central Bank of Chile
299, Central Bank of Chile.
- Pablo García & Claudio Soto, 2006. "Large Hoardings of International Reserves: Are They Worth It?," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 6, pages 171-206 Central Bank of Chile.
- Reinhart, Carmen & Calvo, Guillermo, 1999. "Capital Flow Reversals,the Exchange Rate Debate,and Dollarization," MPRA Paper 8951, University Library of Munich, Germany.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.