Global Impact of a Shift in Foreign Reserves to Euros
AbstractThis paper considers the potential impact of a shift in official foreign reserves from dollars to euros using a global DSGE model. This paper uses QUEST III, a multi-region global DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65 percent dollars and 25 percent euros to equal 45 percent shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings.
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Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 345.
Length: 26 pages
Date of creation: Nov 2008
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Globalization; Global imbalances; reserve currency; euro area; DSGE modelling; Global Impact of a Shift in Foreign Reserves to Euros; Breuss ; Roeger; in 't Veld;
Other versions of this item:
- Fritz Breuss & Werner Roeger & Jan in’t Veld, 2009. "Global impact of a shift in foreign reserves to euros," Empirica, Springer, vol. 36(1), pages 101-122, February.
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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