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Jordan's International Reserve Position: Justifiably Strong

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Author Info
Stanley Watt
Saade Chami
Donal McGettigan
Abstract

Jordan has seen a large increase in its international reserve holdings in recent years. While a healthy reserve buffer is needed under a fixed exchange rate regime, determining optimal reserve levels is not straightforward. In this paper, we first use several traditional measures of reserves adequacy to compare Jordan's reserve holdings with other emerging market (EM) countries. Subsequently, we analyze Jordan's reserve holdings using a reserves-optimizing model, based on Jeanne and Ranciere (2006) (J-R), but extended to allow reserve holdings to influence the likelihood of a sudden stop. The overall analysis suggests that Jordan's reserve holdings provide sufficient support to sustain the dinar peg and to deal with the most extreme capital account disruptions.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/103.

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Length: 19 pages
Date of creation: 03 May 2007
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Handle: RePEc:imf:imfwpa:07/103

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  1. Joshua Aizenman & Jaewoo Lee, 2005. "International reserves: precautionary versus mercantilist views, theory and evidence," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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  2. Mark Taylor & Ashoka Mody, 2004. "International Capital Crunches: The Time-Varying Role Of Informational Asymmetries," Royal Economic Society Annual Conference 2004 113, Royal Economic Society. [Downloadable!]
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  3. Robert P. Flood & Nancy Peregrim Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
  4. Charalambos Christofides & Christian B. Mulder & Andrew Tiffin, 2003. "The Link Between Adherence to International Standards of Good Practice, Foreign Exchange Spreads, and Ratings," IMF Working Papers 03/74, International Monetary Fund. [Downloadable!]
  5. Valerie Cerra & Sweta Chaman Saxena, 2003. "Did Output Recover from the Asian Crisis?," IMF Working Papers 03/48, International Monetary Fund. [Downloadable!]
  6. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August. [Downloadable!] (restricted)
  7. Pablo García & Claudio Soto, 2004. "Large Hoardings of International Reserves: Are They Worth It?," Working Papers Central Bank of Chile 299, Central Bank of Chile. [Downloadable!]
  8. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications," IMF Working Papers 06/229, International Monetary Fund. [Downloadable!]
  9. repec:pal:imfstp:v:54:y:2007:i:2:p:270-305 is not listed on IDEAS
  10. Joshua Aizenman & Jaewoo Lee, 2006. "Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding," NBER Working Papers 12718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," RES Working Papers 4504, Inter-American Development Bank, Research Department. [Downloadable!]
  12. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," NBER Working Papers 12788, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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