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The Effect Of Openness On Foreign Reserves And Growth In The Emerging Economies

  • Marcello Spanò

    (Department of Economics - University of Insubria)

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    This study draws attention to some stylised facts suggesting that the rise of reserves in the Emerging countries is still partially unexplained. Emerging countries in the last decade seem to have reduced their exposure to the risk of short term foreign capital outflow, as they have increased GDP growth with little growth in new capital assets and short term foreign debt. Nevertheless, they have kept raising foreign reserves massively. This work constructs a model that is able to explain these stylised facts are the result of the same process of globalisation. As numerical simulations establish, the optimal solution depends crucially on two structural parameters newly introduced in this model, which account for the marginal cost of long term finance and for the competitiveness of the domestic industry.

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    Article provided by Constantin Brancusi University, Faculty of Economics in its journal Constatin Brancusi University of Targu Jiu Annals - Economy Series.

    Volume (Year): 1 (2012)
    Issue (Month): (March)
    Pages: 7-23

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    Handle: RePEc:cbu:jrnlec:y:2012:v:1:p:7-23
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    1. Brad Sturgill, 2010. "Cross-country Variation in Factor Shares and its Implications for Development Accounting," DEGIT Conference Papers c015_014, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Ricardo Caballero & Stavros Panageas, 2005. "Contingent Reserves Management: An Applied Framework," Working Papers Central Bank of Chile 329, Central Bank of Chile.
    3. Michael Bordo & David Stuckler & Chris Meissner, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," Working Papers 921, University of California, Davis, Department of Economics.
    4. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
    5. Avner Bar-Ilan & Nancy P. Marion, 2009. "A Macroeconomic Perspective on Reserve Accumulation," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 802-823, 09.
    6. Michael B Devereux & Alan Sutherland, 2009. "A Portfolio Model of Capital Flows to Emerging Markets," Working Papers 082009, Hong Kong Institute for Monetary Research.
    7. Michael M. Hutchison & Ilan Noy, . "Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets," EPRU Working Paper Series 02-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    8. Pablo García & Claudio Soto, 2006. "Large Hoardings of International Reserves: Are They Worth It?," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus Sc (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 6, pages 171-206 Central Bank of Chile.
    9. Laura Alfaro & Fabio Kanczuk, 2007. "Optimal reserve management and sovereign debt," Working Paper Series 2007-29, Federal Reserve Bank of San Francisco.
    10. Yin-Wong Cheung & Xingwang Qian, 2007. "Hoarding of International Reserves: Mrs Machlup’s Wardrobe and the Joneses," CESifo Working Paper Series 2065, CESifo Group Munich.
    11. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Sudden stops, sectoral reallocations, and the real exchange rate," Staff Report 414, Federal Reserve Bank of Minneapolis.
    12. Ricardo Caballero & Stavros Panageas, 2005. "A Quantitative Model of Sudden Stops and External Liquidity Management," NBER Working Papers 11293, National Bureau of Economic Research, Inc.
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