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Hoarding for stormy days—Test of international reserves adjustment providing financial buffer stock services

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  • Joshua Aizenman
  • Yothin Jinjarak

Abstract

This paper outlines a tractable cost‐benefit analysis of the buffer stock financial services provided by international reserves (IR) and applies it to eight of the largest Emerging Markets (BRICS, Indonesia, Mexico, Turkey) during 2000–2019. The efficient management of IR generates sizable benefits for countries characterized by hard‐currency external debt. These benefits increase with the volatility of the real exchange rates and sovereign spreads. While the first‐best policy calls for prudential regulations, counter‐cyclical management of hoarding reserves in good times and selling them in bad times provides buffers stock financial services adding up to about 3% of the gross domestic product during our sample period.

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  • Joshua Aizenman & Yothin Jinjarak, 2020. "Hoarding for stormy days—Test of international reserves adjustment providing financial buffer stock services," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 656-675, August.
    • Handle: RePEc:bla:reviec:v:28:y:2020:i:3:p:656-675
    DOI: 10.1111/roie.12466
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    References listed on IDEAS

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    Cited by:

    1. Fatum, Rasmus & Hattori, Takahiro & Yamamoto, Yohei, 2023. "Reserves and risk: Evidence from China," Journal of International Money and Finance, Elsevier, vol. 134(C).
    2. Ahmed, Rashad & Aizenman, Joshua & Jinjarak, Yothin, 2021. "Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance," Journal of Macroeconomics, Elsevier, vol. 67(C).
    3. Chokri Zehri, 2023. "Macro‐management policies: A supporting role to company' capital expenditure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3846-3864, October.

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