The Optimal Level of Reserves for Low-Income Countries: Self-Insurance against External Shocks
This paper develops an analytical framework that helps to quantify the optimal level of international reserves for a small open economy with limited access to foreign capital and subject to natural disasters or terms-of-trade shocks. International reserves allow the country to relieve balance of payments pressures caused by external shocks and to avoid large fluctuations in imports. The paper calibrates the model to two regions—the Caribbean and the Sahel region in sub-Saharan Africa—and assesses the sensitivity of the results. The conclusion is that popular rules of thumb, such as maintaining reserves equivalent to three months of imports, only give imprecise benchmarks.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 56 (2009)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:||Web: http://www.springer.com/economics/journal/41308/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan D. Ostry & Carmen M. Reinhart, 1992.
"Private Saving and Terms of Trade Shocks: Evidence from Developing Countries,"
IMF Staff Papers,
Palgrave Macmillan, vol. 39(3), pages 495-517, September.
- Jonathan David Ostry & Carmen Reinhart, 1991. "Private Saving and Terms of Trade Shocks; Evidence From Developing Countries," IMF Working Papers 91/100, International Monetary Fund.
- Pierre Richard AGÉNOR & Nihal BAYRAKTAR & Karim EL AYNAOUI, .
"Roads out of Poverty? Assessing the Link between Aid, Public Investment, Growth and Poverty Reduction,"
- Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, vol. 86(2), pages 277-295, June.
- Agenor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2005. "Roads out of poverty? assessing the links between aid, public investment, growth, and poverty reduction," Policy Research Working Paper Series 3490, The World Bank.
- Laura Alfaro & Fabio Kanczuk, 2007.
"Optimal reserve management and sovereign debt,"
Working Paper Series
2007-29, Federal Reserve Bank of San Francisco.
- Masao Ogaki & Qiang Zhang, 1998.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
98-02, Ohio State University, Department of Economics.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 2000. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometric Society World Congress 2000 Contributed Papers 1588, Econometric Society.
- Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
- Francesco Caselli & James Feyrer, 2006.
"The marginal product of capital,"
LSE Research Online Documents on Economics
3560, London School of Economics and Political Science, LSE Library.
- Francesco Caselli & James Feyrer, 2006. "The Marginal Product of Capital," CEP Discussion Papers dp0735, Centre for Economic Performance, LSE.
- Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
- Caselli, Francesco & Feyrer, James, 2005. "The Marginal Product of Capital," CEPR Discussion Papers 5203, C.E.P.R. Discussion Papers.
- S. Rao Aiyagari, 1994.
"Uninsured Idiosyncratic Risk and Aggregate Saving,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(3), pages 659-684.
- Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
- Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
- Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 275-298.
When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:56:y:2009:i:4:p:852-875. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.