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Global financial integration, monetary policy and reserve accumulation. Assessing the limits in emerging economies

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  • Enrique Alberola

    ()
    (Banco de España)

  • José María Serena

    ()
    (Banco de España)

Abstract

This paper assesses whether domestic costs of reserve accumulation -and in particular monetary costs- constitute an eventual limit to the process in emerging markets. We find that sterilization is the first measure to deal with these costs. Then, we turn to study whether diminishing ability to deal with the monetary inflows through sterilization is an effective limit to the process, Indeed, when the scope for sterilization is reduced, accumulation diminishes. However, this constraint, albeit relevant in practice, has not constituted an effective limit to accumulation, hitherto.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/07/Fic/dt0706e.pdf
File Function: First version, April 2007
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0706.

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Length: 39 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:bde:wpaper:0706

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Keywords: international reserves; monetary policy; central banks; sterilization; internal costs;

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References

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  1. Ricardo Caballero & Stavros Panageas, 2005. "Contingent Reserves Management: An Applied Framework," Working Papers Central Bank of Chile, Central Bank of Chile 329, Central Bank of Chile.
  2. David Hauner, 2005. "A Fiscal Price Tag for International Reserves," IMF Working Papers 05/81, International Monetary Fund.
  3. Barry Eichengreen, 2004. "Global Imbalances and the Lessons of Bretton Woods," NBER Working Papers 10497, National Bureau of Economic Research, Inc.
  4. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  5. Shang-Jin Wei & Eswar Prasad, 2005. "The Chinese Approach to Capital Inflows," IMF Working Papers 05/79, International Monetary Fund.
  6. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
  7. Aizenman, Joshua & Marion, Nancy P., 2003. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt9s7978n1, Center for International Economics, UC Santa Cruz.
  8. Joshua Aizenman & Jaewoo Lee, 2005. "International reserves: precautionary versus mercantilist views, theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  9. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
  10. Martín Redrado & Jorge Carrera & Diego Bastourre & Javier Ibarlucia, 2006. "The Economic Policy of Foreign Reserve Accumulation: New International Evidence," BCRA Working Paper Series 200614, Central Bank of Argentina, Economic Research Department.
  11. Bofinger, Peter & Wollmershäuser, Timo, 2003. "Managed floating as a monetary policy strategy," Munich Reprints in Economics, University of Munich, Department of Economics 20206, University of Munich, Department of Economics.
  12. M S Mohanty & Philip Turner, 2005. "Intervention: what are the domestic consequences?," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 56-81 Bank for International Settlements.
  13. Marc-André Gosselin & Nicolas Parent, 2005. "An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia," Working Papers, Bank of Canada 05-38, Bank of Canada.
  14. Martín Redrado & Jorge Carrera & Diego Bastourre & Javier Ibarlucia (ed.), 2006. "The Economic Policy of Foreign Reserve Accumulation: New International Evidence," BCRA Paper Series, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, number 02, June.
  15. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries," IMF Working Papers 06/229, International Monetary Fund.
  16. Edwin M. Truman & Anna Wong, 2006. "The Case for an International Reserve Diversification Standard," Working Paper Series, Peterson Institute for International Economics WP06-2, Peterson Institute for International Economics.
  17. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 619-635, August.
  18. Hernando Vargas H., 2005. "Exchange Rate Policy and Inflation Targeting in Colombia," Research Department Publications, Inter-American Development Bank, Research Department 4425, Inter-American Development Bank, Research Department.
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Citations

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Cited by:
  1. Maravall, A. & del Rio, A., 2007. "Temporal aggregation, systematic sampling, and the Hodrick-Prescott filter," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 52(2), pages 975-998, October.
  2. Gabriel Enrique Alberola & José María Serena, 2009. "Sovereign external assets and the resilience of global imbalances," Banco de Espa�a Working Papers, Banco de Espa�a 0834, Banco de Espa�a.
  3. Paloma Acevedo & Enrique Alberola & Carmen Broto, 2007. "Local debt expansion... vulnerability reduction? An assessment for six crises-prone countries," Banco de Espa�a Working Papers, Banco de Espa�a 0733, Banco de Espa�a.
  4. Aitor Erce, 2008. "A structural model of sovereign debt issuance: assessing the role of financial factors," Banco de Espa�a Working Papers, Banco de Espa�a 0809, Banco de Espa�a.
  5. Renzo Rossini & Zenon Quispe & Rocío Gondo, 2008. "Macroeconomic implications of capital inflows: Peru 1991–2007," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 363-387 Bank for International Settlements.
  6. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," IMES Discussion Paper Series 07-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
  7. Isabel Argimón & Pablo Hernández de Cos, 2008. "The determinants of budget balances of the regional (Autonomous) governments," Banco de Espa�a Working Papers, Banco de Espa�a 0803, Banco de Espa�a.
  8. Enrique Alberola & José María Serena, 2008. "Reserves, Sovereign Wealth Funds and the Resilience of Global Imbalances," Economic Notes, Banca Monte dei Paschi di Siena SpA, Banca Monte dei Paschi di Siena SpA, vol. 37(3), pages 315-343, November.

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