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Regional Reserve Pooling Arrangements

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  • Ran Bi

    (IMF Research Department)

  • Prakash Kannan

    (IMF Research Department)

  • Suman Sambha Basu

    (IMF Research Department)

Abstract

Recently, some emerging market countries have initiated intra-regional reserve pooling mechanisms. This is puzzling from a traditional risk-diversification perspective, because country-level shocks are more correlated within rather than across regions. This paper provides a novel rationale for regional pooling. Country self-insurance via noncontingent assets generates externalities through terms of trade shocks for the country's trading partners, because the welfare of the latter is not taken into account in the country's reserve accumulation decision. If trade linkages are stronger within rather than across regions, then intra-regional reserve pooling arrangements may dominate inter-regional arrangements, even if shocks are more correlated within regions.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 675.

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Date of creation: 2010
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Handle: RePEc:red:sed010:675

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  1. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
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  9. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
  10. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
  11. Jaewoo Lee & Joshua Aizenman, 2006. "Financial Versus Monetary Mercantilism: Long-Run View of the Large International Reserves Hoarding," IMF Working Papers 06/280, International Monetary Fund.
  12. Hazel Selvon & Tracy Polius & Oral Williams, 2001. "Reserve Pooling in the Eastern Caribbean Currency Union and the CFA Franc Zone: A Comparative Analysis," IMF Working Papers 01/104, International Monetary Fund.
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