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The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?

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  • Aizenman, Joshua
  • Sun, Yi

Abstract

We explain the size of international reserve depletion during the global crisis, where only about half of the EMs drew down their reserves as part of the adjustment mechanism. Countries that internalized their large exposure to trade shocks before the crisis, used their IR as a buffer stock in the first phase of the crisis. After a rapid initial depletion of reverses, they reached a markedly declining rate of IR depletion, losing not more than one-third of their pre-crisis IR. The adjustment of EMs was constrained more by their fear of losing reserves than by their fear of floating.

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  • Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:250-269
    DOI: 10.1016/j.iref.2012.03.004
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    More about this item

    Keywords

    Trade shocks; Deleveraging; International reserves; Emerging markets;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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