On the Level of International Reserves in Chile: an Analysis Based on Complementary Approaches

This paper analyzes the recent evolution and the level of international reserves in Chile using complementary approaches. First, we construct a set of international reserves indicators suggested by the literature for a group of developed and emerging economies. Second, we estimate a demand for international reserves model using a panel of 47 countries. Finally, we parameterize two theoretical models in order to estimate the level of international reserves that would be needed to withstand a financial crisis. The analysis shows that, although during the period of floating exchange rate the level of reserves in Chile has fallen significantly, it has remained at an adequate level for reasonable degrees of risk suggested by theoretical models. However, by the end of 2010, the level of reserves was below those of other emerging countries with floating exchange rate regimes.