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Foreign exchange reserves in a credit constrained economy

  • Kurma? Akdogan

We discuss the role of foreign exchange reserves as precautionary savings under an imperfect market framework due to the presence of endogenously determined borrowing constraints. We show that cost of holding reserves is higher in borrowin constrained economies than unconstrained ones as a result of the leverage effect of the debt.

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Article provided by CEPII research center in its journal International Economics/Economie Internationale.

Volume (Year): (2012)
Issue (Month): 130 ()
Pages: 59-79

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Handle: RePEc:cii:cepiei:2012-q2-130-3
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