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Can governments sleep more soundly when holding international reserves? A banking and financial vulnerabilities perspective

Author

Listed:
  • Audrey Sallenave
  • Jean-Pierre Allegret

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

  • Tolga Omay

    (Atilim Universitesi)

Abstract

We use a sample of 40 developing and emerging countries over the period 1995- 2015 to assess the effectiveness of international reserve holding as a crisis mitigator. We test the relevance of the reserve accumulation decreasing returns assumption by estimating the most recent version of the PSTR model. We find that increasing stocks of international reserves allows domestic authorities to mitigate the negative impacts of financial and banking vulnerabilities on GDP growth rates leading to reject the decreasing returns assumption. This evidence is robust to sensitivity checks.

Suggested Citation

  • Audrey Sallenave & Jean-Pierre Allegret & Tolga Omay, 2024. "Can governments sleep more soundly when holding international reserves? A banking and financial vulnerabilities perspective," Post-Print hal-03945433, HAL.
    • Handle: RePEc:hal:journl:hal-03945433
    DOI: 10.1080/00036846.2023.2177597
    Note: View the original document on HAL open archive server: https://hal.science/hal-03945433
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    Keywords

    Banking vulnerabilities; Financial vulnerabilities; External shocks; Emerging and developing countries; Panel Smooth Transition Regression model; Reserves accumulation;
    All these keywords.

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