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Vulnerability to Normalization of Global Financing Conditions An Operational Approach

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  • Shakill Hassan
  • Merrisa Paul
  • Siobhan Redford

Abstract

A simple ratio of foreign exchange reserves to the gross external financing requirement (GEFR) largely explains the cross-sectional variation in exchange rate depreciation over the taper tantrum in 2013. We update the ratio for a set of emerging markets, and compare current to previous exposure. South Africas relative position barely changed between mid-2013 and early 2015. In contrast, India rapidly increased its ratio of reserves-to-GEFR through improvements in each component of the indicator; and forcefully reduced inflation. We document a reduction in high-frequency reactions of the rupee to FOMC meetings. Reducing vulnerability to imminent tightening in US monetary policy requires, above all, reducing the external financing requirement and/or increasing the stock of reserves.

Suggested Citation

  • Shakill Hassan & Merrisa Paul & Siobhan Redford, 2015. "Vulnerability to Normalization of Global Financing Conditions An Operational Approach," Working Papers 6941, South African Reserve Bank.
    • Handle: RePEc:rbz:wpaper:6941
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    1. Ludovic Gauvin & Cyril C. Rebillard, 2018. "Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels," The World Economy, Wiley Blackwell, vol. 41(12), pages 3379-3415, December.
    2. Fratzscher, Marcel & Rime, Dagfinn & Sarno, Lucio & Zinna, Gabriele, 2015. "The scapegoat theory of exchange rates: the first tests," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 1-21.
    3. Fernanda Nechio, 2014. "Fed tapering news and emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    4. Joshua Aizenman & Mahir Binici & Michael M. Hutchison, 2016. "The Transmission of Federal Reserve Tapering News to Emerging Financial Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 317-356, June.
    5. Ms. Prachi Mishra & Mr. Kenji Moriyama & Mr. Papa M N'Diaye & Lam Nguyen, 2014. "Impact of Fed Tapering Announcements on Emerging Markets," IMF Working Papers 2014/109, International Monetary Fund.
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    Cited by:

    1. Tumisang Loate & Ekaterina Pirozhkova & Nicola Viegi, 2021. "Sailing into the Wind evaluating the near future of Monetary Policy in South Africa," Working Papers 11006, South African Reserve Bank.

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