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Global impact of a shift in foreign reserves to euros

Author

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  • Fritz Breuss

    ()

  • Werner Roeger

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  • Jan in’t Veld

    ()

Abstract

This paper considers the potential impact of a shift in official foreign reserves from dollars to euros using a global DSGE model. This paper uses QUEST III, a multi-region global DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65 percent dollars and 25 percent euros to equal 45 percent shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings.
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Suggested Citation

  • Fritz Breuss & Werner Roeger & Jan in’t Veld, 2009. "Global impact of a shift in foreign reserves to euros," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(1), pages 101-122, February.
  • Handle: RePEc:kap:empiri:v:36:y:2009:i:1:p:101-122
    DOI: 10.1007/s10663-008-9094-z
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    References listed on IDEAS

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    1. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc.
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    4. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, June.
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    7. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 43(6), pages 349-358, November.
    8. Elias Papaioannou & Richard Portes, 2008. "The international role of the euro: a status report," European Economy - Economic Papers 2008 - 2015 317, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Masson, Paul R., 2007. "The growing role of the euro in emerging market finance," Policy Research Working Paper Series 4381, The World Bank.
    10. Bracke, Thierry & Bussière, Matthieu & Fidora, Michael & Straub, Roland, 2008. "A framework for assessing global imbalances," Occasional Paper Series 78, European Central Bank.
    11. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 43(6), pages 349-358, November.
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    13. Henderson, Dale W. & Rogoff, Kenneth, 1982. "Negative net foreign asset positions and stability in a world portfolio balance model," Journal of International Economics, Elsevier, vol. 13(1-2), pages 85-104, August.
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    Citations

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    Cited by:

    1. Fritz Breuss, 2011. "Downsizing the Eurozone into an OCA or Entry into a Fiscal Transfer Union," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 05-12, December.
    2. Fritz Breuss, 2009. "Ten Years of EMU – Achievements, Weaknesses, Challenges," Austrian Economic Quarterly, WIFO, vol. 14(1), pages 49-72, April.
    3. Harald Badinger & Fritz Breuss, 2011. "The Quantitative Effects of European Post-war Economic Integration," Chapters,in: International Handbook on the Economics of Integration, Volume III, chapter 14 Edward Elgar Publishing.
    4. Fritz Breuss, 2009. "Lacking "Europeanisation" of National Business Cycles as a Risk for the Euro Area," Austrian Economic Quarterly, WIFO, vol. 14(2), pages 91-104, June.

    More about this item

    Keywords

    Globalization; Global imbalances; Reserve currency; Euro area; DSGE modelling; C68; F31; F32;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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