The Demand for International Reserves and Exchange Rate Adjustments: The Case of LDC's, 1964-1972
AbstractIn this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of LDC's. It is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than countries that have occasionally used exchange rate adjustments for correcting payments imbalances. The dynamics of the adjustment for both groupsof countries are also analyzed. The results show that while both groups tend to eliminate reserve disequilibria fast, those countries that have maintained a fixed rate tend to do it more slowly than countries that have occasionally devalued their currency. It Is also shown that the year prior to a devaluation, international reserves have been, on average, 30% below their short-run desired level. These results are important since they indicate that not all LDC's should be aggregated for prediction purposes. The results also have implications for the analysis of the adequacy of international reserves in less developed countries.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 229.
Date of creation: 01 Dec 1981
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Web page: http://www.econ.ucla.edu/
Other versions of this item:
- 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.
- Sebastian Edwards, 1984. "The Demand for International Reserves and Exchange Rate Adjustments: TheCase of LDCs, 1964-1972," NBER Working Papers 1063, National Bureau of Economic Research, Inc.
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