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Jordan's International Reserve Position

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  • Stanley Watt
  • Donal McGettigan
  • Saade Chami
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    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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    Bibliographic Info

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

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    Length: 19
    Date of creation: 01 May 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/103

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    Related research

    Keywords: Reserves accumulation; Capital flows; Exchange rate stability; External shocks; reserve holdings; short-term debt; current account deficit; current account; external debt; public debt; domestic production; short term debt; reserve holding; external financing; long-term debt; foreign debt; debt burden; public borrowing; government debt; international borrowing; private debt; international standards; foreign debt repayment; reserve bank; international lending; domestic currency; debt problems; open economies; open economy; domestic economy; liquidity crisis; exchange rate regime; current account adjustment; current account surpluses; debt obligations; reserve accumulation;

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    References

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    1. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies," IMF Working Papers 99/88, International Monetary Fund.
    2. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
    3. Valerie Cerra & Sweta Chaman Saxena, 2005. "Did Output Recover from the Asian Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 1-23, April.
    4. Ashoka Mody & Mark P. Taylor, 2002. "International Capital Crunches," IMF Working Papers 02/43, International Monetary Fund.
    5. 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.
    6. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," NBER Working Papers 11366, National Bureau of Economic Research, Inc.
    7. Marcos Chamon & Paolo Manasse & Alessandro Prati, 2007. "Can We Predict the Next Capital Account Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 270-305, June.
    8. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries," IMF Working Papers 06/229, International Monetary Fund.
    9. Pablo García & Claudio Soto, 2006. "Large Hoardings of International Reserves: Are They Worth It?," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 6, pages 171-206 Central Bank of Chile.
    10. Lawrence H. Summers, 2007. "Reflections on Global Account Imbalances and Emerging Markets Reserve Accumulation," Working Papers id:1042, eSocialSciences.
    11. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," Research Department Publications 4504, Inter-American Development Bank, Research Department.
    12. 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.
    13. Jaewoo Lee & Joshua Aizenman, 2006. "Financial Versus Monetary Mercantilism," IMF Working Papers 06/280, International Monetary Fund.
    14. Andrew Tiffin & Christian B. Mulder & Charalambos Christofides, 2003. "The Link Between Adherence to International Standards of Good Practice, Foreign Exchange Spreads, and Ratings," IMF Working Papers 03/74, International Monetary Fund.
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