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A Fiscal Price Tag for International Reserves

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Author Info

  • David Hauner

Abstract

This paper examines the (quasi-)fiscal impact of the (opportunity) cost of international reserves. It proposes a conceptual framework, with particular emphasis on two hitherto somewhat neglected aspects: a more appropriate measure of gross opportunity cost, and potential savings from lower external debt spreads that countries "buy" by holding reserves. The framework is then applied to 100 countries over 1990-2004. The results suggest that a turning point has been reached in recent years: while most countries made money on their reserves during 1990-2001, most have been losing money during 2002-04.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/81.

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Length: 29
Date of creation: 01 Apr 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/81

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Related research

Keywords: External debt; international reserves; currency composition; reserve holdings; central bank; reserve assets; public public and publicly guaranteed; international financial statistics; debt service; bond; reserve currency; debt stock; reserve accumulation; public and publicly guaranteed debt; reserve currencies; ratio of debt service to exports; official creditors; reserve accumulations; private sector debt; debt service to exports; central banks; domestic currency; private creditors; external borrowing; present value; reserve management; external debt service; ratio of debt; reserve bank; government bond; internal rate of return; current account; market debt; concessional debt; current account deficit; reserve asset; global bond index; external public debt; financial stability; international debt; public debt; bond spreads; bond yields; external debt stock; bond index; crises episodes; government bond yields; domestic-currency; global bond;

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References

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  1. Graham Bird & Ramkishen Rajan, 2002. "Too Much of a Good Thing?: The Adequacy of International Reserves in the Aftermath of Crises," Centre for International Economic Studies Working Papers 2002-10, University of Adelaide, Centre for International Economic Studies.
  2. Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
  3. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
  4. Darrell Duffie & Lasse Heje Pedersen & Kenneth J. Singleton, 2003. "Modeling Sovereign Yield Spreads: A Case Study of Russian Debt," Journal of Finance, American Finance Association, vol. 58(1), pages 119-159, 02.
  5. J. M. Landell-Mills, 1989. "The Demand for International Reserves and Their Opportunity Cost," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 708-732, September.
  6. Jaewoo Lee, 2004. "Insurance Value of International Reserves," IMF Working Papers 04/175, International Monetary Fund.
  7. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  8. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-14, June.
  9. Keltzer, K. & Spiegel, M., 1999. "Sterilization Costs and Exchange Rate Targeting," Papers pb99-03, Economisch Institut voor het Midden en Kleinbedrijf-.
  10. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "On the Effect of Opportunity Cost on International Reserve Holdings," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 329-32, May.
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