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Precautionary Reserves

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Author Info

  • Fabian Valencia

Abstract

Using precautionary savings models we compute levels of optimal reserves for Bolivia. Because of Bolivia''s reliance on commodity exports and little integration with capital markets, we focus on current account shocks as the key balance of payments risk. These models generate an optimal level of net foreign assets ranging from 29 to 37 percent of GDP. For comparison purposes, we contrasted these results with standard rule of thumb measures of reserve adequacy, which in the case of Bolivia resulted in substantially lower levels of adequate reserves. These differing results emphasize the need to appropriately account for country-specific risks in order to derive adequate measures of reserve buffers.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/54.

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Length: 25
Date of creation: 01 Mar 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/54

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Related research

Keywords: Commodity prices; Economic models; Export prices; External shocks; Reserves accumulation; Reserves adequacy; Terms of trade; foreign assets; net foreign assets; foreign asset; net foreign asset; net foreign asset position; foreign asset position; trade shocks; foreign exchange; investment decisions; capital markets; foreign asset holdings; international investment; foreign goods; foreign capital; capital flows; credit markets;

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Cited by:
  1. Ton S. van den Bremer & Frederick van der Ploeg, 2012. "How to Spend a Windfall: Dealing with volatility and capital scarcity," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 085, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Era Dabla-Norris & Jun Il Kim & Kazuko Shirono, 2011. "Optimal Precautionary Reserves for Low-Income Countries," IMF Working Papers 11/249, International Monetary Fund.

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