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Foreign Exchange Reserve Demand : An Information Value Approach

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  • Kurmas Akdogan

Abstract

We perform a statistical analysis to examine the international reserve accumulation of four selected emerging market countries : Argentina, Brazil, Korea and Turkey. We perform Granger causality tests to investigate the information value of key macroeconomic variables on foreign exchange reserves. We use a simple unrestricted vector autoregression analysis to capture a reduced form analysis of the demand for international reserves. Our results suggest that interest rate differentials with the US contain potentially useful information for foreign exchange reserve accumulation for Argentina and Turkey. Similarly, consumption differential with the US and net exports contain information for foreign exchange reserve movements in Korea.

Suggested Citation

  • Kurmas Akdogan, 2010. "Foreign Exchange Reserve Demand : An Information Value Approach," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(2), pages 33-44.
    • Handle: RePEc:tcb:cebare:v:10:y:2010:i:2:p:33-44
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    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    2. Levy Yeyati, Eduardo, 2008. "The cost of reserves," Economics Letters, Elsevier, vol. 100(1), pages 39-42, July.
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    More about this item

    Keywords

    Foreign exchange reserves; Vector Autoregression;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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