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The Empirics of Foreign Reserves

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  • Philip Lane
  • Dominic Burke

Abstract

In this paper, we study the determinants of cross-country variation in the level of international reserves over 1981-95. Confirming intuition, trade openness is easily the most important variable. There is also some evidence that financial deepening is associated with an increase in the reserves ratio. Smaller and more volatile industrial countries hold larger reserves than their larger, less volatile counterparts. In addition, more indebted developing countries tend to have smaller reserve ratios. We view these results as establishing some interesting stylized facts that may be helpful in informing future theoretical modelling of reserves behavior.

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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series CEG Working Papers with number 20013.

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Date of creation: 2001
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Handle: RePEc:tcd:tcdceg:20013

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Postal: Trinity College, Dublin 2
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Fax: 6772503
Web page: http://www.tcd.ie/Economics/
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  1. Vittorio Grilli & Gian-Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Working Papers 95/31, International Monetary Fund.
  2. Kelly, Michael G, 1970. "The Demand for International Reserves," American Economic Review, American Economic Association, vol. 60(4), pages 655-67, September.
  3. Eaton, Jonathan & Gersovitz, Mark, 1980. "LDC participation in international financial markets : Debt and reserves," Journal of Development Economics, Elsevier, vol. 7(1), pages 3-21, February.
  4. J. M. Landell-Mills, 1989. "The Demand for International Reserves and Their Opportunity Cost," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 708-732, September.
  5. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises," IMF Working Papers 97/87, International Monetary Fund.
  6. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. Grubel, Herbert G, 1971. "The Demand for International Reserves: A Critical Review of the Literature," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1148-66, December.
  8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  9. Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, vol. 41(161), pages 14-24, February.
  10. Cottarelli, C. & Giannini, C., 1997. "Credibility without Rules? Monetary Frameworks in the Post-Bretton Woods Era," Papers 312, Banca Italia - Servizio di Studi.
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Citations

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Cited by:
  1. Kasman, Adnan & Ayhan, Duygu, 2008. "Foreign exchange reserves and exchange rates in Turkey: Structural breaks, unit roots and cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 83-92, January.
  2. Axel Dreher & Roland Vaubel, 2007. "Foreign Exchange Intervention and the Political Business Cycle : A Panel Data Analysis," KOF Working papers 07-159, KOF Swiss Economic Institute, ETH Zurich.
  3. Gabriela Contreras & Alejandro Jara & Eduardo Olaberría & Diego Saravia, 2012. "On the Level of International Reserves in Chile: an Analysis Based on Complementary Approaches," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(3), pages 40-63, December.
  4. Joseph Joyce & Raul Razo-Garcia, 2011. "Reserves, quotas and the demand for international liquidity," The Review of International Organizations, Springer, vol. 6(3), pages 393-413, September.
  5. Steiner, Andreas, 2013. "How central banks prepare for financial crises – An empirical analysis of the effects of crises and globalisation on international reserves," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 208-234.
  6. Andreas Steiner, 2010. "The Accumulation of Foreign Exchange by Central Banks: Fear of Capital Mobility?," Working Papers 85, Institute of Empirical Economic Research.
  7. Taufiq Choudhry & Mohammad Hasan, 2008. "Exchange Rate Regime and Demand for Reserves: Evidence from Kenya, Mexico and Philippines," Open Economies Review, Springer, vol. 19(2), pages 167-181, April.
  8. Ricarda Demarmels & Andreas M. Fischer, 2002. "Understanding Reserve Volatility in Emerging Markets: A Look at the Last Thirty Years," Working Papers 02.02, Swiss National Bank, Study Center Gerzensee.
  9. Demarmels, Ricarda & Fischer, Andreas M, 2003. "Understanding Reserve Volatility in Emerging Markets: A Look at the Long-Run," CEPR Discussion Papers 3908, C.E.P.R. Discussion Papers.
  10. Sona Benecka & Lubos Komarek, 2014. "International Reserves: Facing Model Uncertainty," Working Papers 2014/03, Czech National Bank, Research Department.
  11. Mendoza, Ronald U., 2010. "Was the Asian crisis a wake-up call?: Foreign reserves as self-protection," Journal of Asian Economics, Elsevier, vol. 21(1), pages 1-19, February.
  12. Rangan Gupta & Shawkat Hammoudeh & Won Joong Kim & Beatrice D. Simo-Kengne, 2013. "Forecasting China’s Foreign Exchange Reserves Using Dynamic Model Averaging: The Role of Macroeconomic Fundamentals, Financial Stress and Economic Uncertainty," Working Papers 201338, University of Pretoria, Department of Economics.
  13. Drummond, Paulo & Dhasmana, Anubha, 2008. "Foreign Reserve Adequacy in Sub-Saharan Africa," MPRA Paper 9729, University Library of Munich, Germany.
  14. Gupta, Rangan & Hammoudeh, Shawkat & Kim, Won Joong & Simo-Kengne, Beatrice D., 2014. "Forecasting China's foreign exchange reserves using dynamic model averaging: The roles of macroeconomic fundamentals, financial stress and economic uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 170-189.
  15. Karim Khan & Eatzaz Ahmed, 2005. "The Demand for International Reserves: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 939-957.
  16. Marc-André Gosselin & Nicolas Parent, 2005. "An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia," Working Papers 05-38, Bank of Canada.
  17. Andreas Steiner, 2011. "Do dynamics and heterogeneity in panel data models matter?," Empirical Economics, Springer, vol. 40(1), pages 165-176, February.

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