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Exchange-Rate Regimes and International Reserves

Author

Listed:
  • Changkyu Choi

    (Myongji University)

  • Seung-Gwan Baek

    (Hongik University)

Abstract

In this paper, we use the new classification of exchange-rate arrangements developed by Reinhart and Rogoff (2004) to test whether reserve holdings decrease with increasing exchange-rate flexibility. Using pooled data for 127 countries over the period 1980-2000, we find several new results. First, the degree of exchange-rate flexibility has an inverted-U relationship with the country��s reserve holdings. Exchange-rate regimes with intermediate flexibility need more reserves than polar regimes (hard pegs and freely floating). Second, reserve holdings are smaller under hard pegs than under freely floating, implying that current large stockpiles of reserves in East Asian countries can be significantly reduced if they adopt a single currency. Finally, per capita GDP and reserve holdings have an inverted-U relationship, too, reflecting that their correlation would be negative for industrial countries, but positive for developing countries.

Suggested Citation

  • Changkyu Choi & Seung-Gwan Baek, 2008. "Exchange-Rate Regimes and International Reserves," Korean Economic Review, Korean Economic Association, vol. 24, pages 105-129.
  • Handle: RePEc:kea:keappr:ker-20080630-24-1-04
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Petar Vujanovic, 2011. "Understanding the Recent Surge in the Accumulation of International Reserves," OECD Economics Department Working Papers 866, OECD Publishing.
    2. Dreher, Axel & Vaubel, Roland, 2009. "Foreign exchange intervention and the political business cycle: A panel data analysis," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 755-775, September.
    3. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    4. Ovidiu Stoica & Iulian Ihnatov, 2016. "Exchange Rate Regimes And External Financial Stability," Economic Annals, Faculty of Economics, University of Belgrade, vol. 61(209), pages 27-44, April - J.
    5. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    6. Sunil Sharma & Woon Gyu Choi & Maria Strömqvist, 2007. "Capital Flows, Financial Integration, and International Reserve Holdings; The Recent Experience of Emerging Markets and Advanced Economies," IMF Working Papers 07/151, International Monetary Fund.

    More about this item

    Keywords

    exchange-rate regime; international reserves; currency union;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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