On the interest-rate elasticity of the demand for international reserves: Some evidence from developing countries
AbstractContrary to what is suggested by the theory, most empirical studies on the demand for international reserves have failed to find a significant(negative) coefficient for the opportunity cost of holding reserves. In this paper it is argued that the reason for this is that the opportunity cost of holding international reserves has been measured incorrectly. In the empirical analysis presented in this paper the spread between the interest rate at which countries can borrow from abroad and LIBOR is used as a proxy for the net opportunity cost for holding reserves. The results obtained using data for a group of developing countries for 1976-198O show that when this net opportunity cost is used, the regression coefficient is significantly negative.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 4 (1985)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Sebastian Edwards, 1986. "On the Interest Rate Elasticity of the Demand for International Reserves: Some Evidence from Developing Coutries," NBER Working Papers 1532, National Bureau of Economic Research, Inc.
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