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Fluctuation in the International Currency Reserves of Less Developed Countries: HIPC vs Non-HIPC

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  • Augustine A. Boakye
  • Hassan Molana

Abstract

This paper uses the principles of the monetary approach model of balance of payments and exchange market pressure to analyze the fluctuations in the international reserves of LDCs. The motivation for this analysis derives from the recent emphasis of the debt reduction policies that target the HIPCs. These policies stress the importance of non-monetary, and to some extent non-economic factors such as institutional improvements, good governance, infrastructural development and poverty reduction strategies. The argument is that once such reforms are implemented effectively, the economic forces will work in the right direction enabling the HIPCs to sustain a healthy balance of payments. We use panel data analysis to examine whether there is a significant difference between international reserves fluctuations in the HIPCs and in the rest of the LDCs. Evidence from data over the period 1983–2003 for 47 LDCs - of which 20 qualify as HIPCs by the IMF-World Bank criteria - suggests that there are significant differences in the way the reserve flows respond to their main determinants in the two sets of countries. This begs the question of whether the above mentioned policies can alleviate the causes of such differences.

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Bibliographic Info

Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 203.

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Date of creation: Sep 2007
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Handle: RePEc:dun:dpaper:203

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Keywords: monetary approach; exchange market pressure; international reserves; Heavily Indebted Poor Country (HIPC);

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  1. Godwin Chukwudum Nwaobi, 2003. "The Balance Of Payments As A Monetary Phenomenon:An Econometric Case Study Of Nigeria," International Finance 0307001, EconWPA.
  2. Spanos, Aris & Taylor, Mark P, 1984. "The Monetary Approach to the Balance of Payments: A Critical Appraisal of Some Empirical Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(4), pages 329-40, November.
  3. Pentecost, Eric J. & Van Hooydonk, Charlotte & Van Poeck, Andre, 2001. "Measuring and estimating exchange market pressure in the EU," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 401-418, June.
  4. Wilford, D Sykes & Zecher, J Richard, 1979. "Monetary Policy and the Balance of Payments in Mexico, 1955-75," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 340-48, August.
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  6. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September.
  7. Hallwood, C. Paul & Marsh, Ian W., 2004. "Exchange market pressure on the pound-dollar exchange rate: 1925-1931," The North American Journal of Economics and Finance, Elsevier, vol. 15(2), pages 249-264, August.
  8. Evan Tanner, 2001. "Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 2.
  9. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, vol. 39(3-4), pages 273-295, November.
  10. Connolly, Michael & Taylor, Dean, 1976. "Testing the Monetary Approach to Devaluation in Developing Countries," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 849-59, August.
  11. Baig, Mirza Allim & Narasimhan, V. & Ramachandran, M., 2003. "Exchange market pressure and the Reserve Bank of India's intervention activity," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 727-748, November.
  12. Gochoco-Bautista, Maria Socorro & Bautista, Carlos C., 2005. "Monetary policy and exchange market pressure: The case of the Philippines," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 153-168, March.
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