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International Reserves and the Global Financial Crisis

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  • Kathryn M.E. Dominguez
  • Yuko Hashimoto
  • Takatoshi Ito

Abstract

This study examines whether pre-crisis international reserve accumulations, as well as exchange rate and reserve policy decisions made during the global financial crisis, can help to explain cross-country differences in post-crisis economic performance. Our approach focuses not only on the total stock of official reserves held by countries, but also on the decisions by governments to purchase or sell reserve assets during the crisis period. We introduce new data made available through the IMF Special Data Dissemination Standard (SDDS) Reserve Template, which allow us to distinguish interest income and valuation changes in the stock of official reserves from the actively managed component of reserves. We use this novel data to gauge how (and whether) reserve accumulation policies influenced the economic and financial performance of countries during and after the global crisis. Our findings support the view that higher reserve accumulations prior to the crisis are associated with higher post-crisis GDP growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17362.

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Date of creation: Aug 2011
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Publication status: forthcoming in the Journal of International Economics
Handle: RePEc:nbr:nberwo:17362

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  5. Kathryn M.E. Dominguez & Rasmus Fatum & Pavel Vacek, 2010. "Does Foreign Exchange Reserve Decumulation Lead to Currency Appreciation?," NBER Working Papers 16044, National Bureau of Economic Research, Inc.
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  8. Kathryn M. E. Dominguez & Yuko Hashimoto & Takatoshi Ito, 2011. "International Reserves and the Global Financial Crisis," NBER Chapters, National Bureau of Economic Research, Inc, in: Global Financial Crisis National Bureau of Economic Research, Inc.
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  20. Donald B. Adams & Dale W. Henderson, 1983. "Definition and measurement of exchange market intervention," Staff Studies, Board of Governors of the Federal Reserve System (U.S.) 126, Board of Governors of the Federal Reserve System (U.S.).
  21. Takatoshi Ito & Tomoyoshi Yabu, 2004. "What Prompts Japan to Intervene in the Forex Market? A New Approach to a Reaction Function," NBER Working Papers 10456, National Bureau of Economic Research, Inc.
  22. Joshua Aizenman & Yi Sun, 2009. "The financial crisis and sizable international reserves depletion: From 'fear of floating' to the 'fear of losing international reserves'?," NBER Working Papers 15308, National Bureau of Economic Research, Inc.
  23. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Feb.
  24. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER International Seminar on Macroeconomics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 193 - 221.
  25. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2010. "The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(4), pages 615-641, June.
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