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Optimal Holdings of International Reserves: Self-insurance against Sudden Stops

  • Guillermo Calvo

    (Columbia University)

  • Alejandro Izquierdo

    (Regional Economic Advisor)

  • Rudy Loo-Kung

    (Inter-American Development Bank)

This paper addresses the issue of the optimal stock of international reserves in terms of a statistical model in which reserves affect both the probability of a sudden stop –as well as associated output costs– by reducing the balance-sheet effects of liability dollarization. Observed reserves on the eve of the global financial crisis were–on average–not distant from optimal reserves

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Article provided by Centro de Estudios Monetarios Latinoamericanos in its journal Monetaria.

Volume (Year): XXXV (2013)
Issue (Month): 1 (January-june)
Pages: 1-35

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Handle: RePEc:cml:moneta:v:xxxv:y:2013:i:1:p:1-35
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