Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Self-insurance Role of International Reserves and the 2008-2010 Crisis

Contents:

Author Info

  • Antonio Francisco A. Silva Jr
Registered author(s):

    Abstract

    There is no standard rule for the definition of an “optimal level” of international reserves and several assumptions underlie the rationale behind holding reserves. There are various theoretical approaches, but no standard for the evaluation of the performance of “optimal level” models, and their parameters are difficult to estimate. The literature suggests that the benefits of holding reserves are high, but the accumulation of reserves is a costly strategy. In fact, in a world of high liquidity and free capital flow, establishing an adequate level of international reserves is still a puzzle. The strategy of accumulating international reserves is evaluated here using data from the 2008-2010 crisis and it is shown that countries with higher international reserve levels had less adjustment costs between 2008 and 2010. The cost-benefit relationship of holding reserves in the 2008-2010 crisis is also discussed based on a sample with 71 countries.

    Download Info

    If 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.
    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps256.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 256.

    as in new window
    Length:
    Date of creation: Nov 2011
    Date of revision:
    Handle: RePEc:bcb:wpaper:256

    Contact details of provider:
    Web page: http://www.bcb.gov.br/?english

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    2. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
    3. Emanuel Kohlscheen & Stephen A O'Connell, 2006. "A Sovereign Debt Model with Trade Credit and Reserves," WEF Working Papers 0004, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
    4. Obstfeld, Maurice & Shambaugh, Jay C. & Taylor, Alan M., 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," Center for International and Development Economics Research, Working Paper Series qt4rq9v2rb, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    5. Tito Cordella & Eduardo Levy Yeyati, 2005. "A (New) Country Insurance Facility," IMF Working Papers 05/23, International Monetary Fund.
    6. Ricardo Caballero & Stavros Panageas, 2005. "Contingent Reserves Management: An Applied Framework," Working Papers Central Bank of Chile 329, Central Bank of Chile.
    7. Ramachandran, M., 2004. "The optimal level of international reserves: evidence for India," Economics Letters, Elsevier, vol. 83(3), pages 365-370, June.
    8. Michael Hutchison, 2001. "A cure worse than the disease? currency crises and the output costs of IMF-supported stabilization programs," Pacific Basin Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
    9. Edwards, Sebastian, 1983. "The Demand for International Reserves and Exchange Rate Adjustments: The Case of LDCs, 1964-1972," Economica, London School of Economics and Political Science, vol. 50(199), pages 269-80, August.
    10. Clark, Peter B, 1970. "Optimum International Reserves and the Speed of Adjustment," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 356-76, March-Apr.
    11. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
    12. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
    13. Michael Hutchison, 2003. "A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 321-360 National Bureau of Economic Research, Inc.
    14. Olivier J. Blanchard & Mitali Das & Hamid Faruqee, 2010. "The Initial Impact of the Crisis on Emerging Market Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 263-323.
    15. Komarek, Lubos & Melecky, Martin, 2005. "Currency Crises, Current Account Reversals and Growth : The Compounded Effect for Emerging Markets," The Warwick Economics Research Paper Series (TWERPS) 735, University of Warwick, Department of Economics.
    16. Aizenman, Joshua & LEE, JAEWOO, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," Santa Cruz Department of Economics, Working Paper Series qt44g3n2j8, Department of Economics, UC Santa Cruz.
    17. Antonio Francisco A. Silva Jr., 2010. "Brazilian Strategy for Managing the Risk of Foreign Exchange Rate Exposure During a Crisis," Working Papers Series 207, Central Bank of Brazil, Research Department.
    18. Obstfeld, Maurice & Shambaugh, Jay C & Taylor, Alan M, 2008. "Financial Stability, the Trilemma, and International Reserves," CEPR Discussion Papers 6693, C.E.P.R. Discussion Papers.
    19. Gaston Gelos & Robert Rennhack & James P Walsh & Pelin Berkmen, 2009. "The Global Financial Crisis," IMF Working Papers 09/280, International Monetary Fund.
    20. Grimes, Arthur, 1993. "International Reserves under Floating Exchanges Rates: Two Paradoxes Explained," The Economic Record, The Economic Society of Australia, vol. 69(207), pages 411-15, December.
    21. Ricardo J. Caballero & Stavros Panageas, 2003. "Hedging Sudden Stops and Precautionary Contractions," NBER Working Papers 9778, National Bureau of Economic Research, Inc.
    22. Hawkins, Robert G & Rangarajan, C, 1970. "On the Distribution of New International Reserves," Journal of Finance, American Finance Association, vol. 25(4), pages 881-91, September.
    23. Claudio Soto & Alberto Naudon & Eduardo López & Alvaro Aguirre, 2004. "Acerca del Nivel Adecuado de las Reservas Internacionales," Working Papers Central Bank of Chile 267, Central Bank of Chile.
    24. Ferhan Salman & Mali Chivakul & Ricardo Llaudes, 2010. "The Impact of the Great Recessionon Emerging Markets," IMF Working Papers 10/237, International Monetary Fund.
    25. Joshua Aizenman, 2008. "Large Hoarding Of International Reserves And The Emerging Global Economic Architecture," Manchester School, University of Manchester, vol. 76(5), pages 487-503, 09.
    26. Brad Setser & Nouriel Roubini & Christian Keller & Mark Allen & Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 02/210, International Monetary Fund.
    27. Detragiache, Enrica, 1996. "Fiscal Adjustment and Official Reserves in Sovereign Debt Negotiations," Economica, London School of Economics and Political Science, vol. 63(249), pages 81-95, February.
    28. Jaewoo Lee, 2004. "Insurance Value of International Reserves," IMF Working Papers 04/175, International Monetary Fund.
    29. Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
    30. John F. O. Bilson & Jacob A. Frenkel, 1979. "Dynamic Adjustment and the Demand for International Reserves," NBER Working Papers 0407, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:256. See general 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: (Francisco Marcos Rodrigues Figueiredo).

    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.