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Cost of Holding Excess Reserves - The Indian Experience

  • Abhijit Sen Gupta

    (Indian Council for Research on International Economic Relations)

Most of the existing literature has used single reserve adequacy measures to evaluate the volume of excess reserves. In this paper, we employ empirical methods to generate a comprehensive reserve adequacy measure, incorporating the various objectives of holding reserves, and compare the actual reserve accumulation experience of various emerging markets with the prediction of our empirical model. Using this comprehensive reserve adequacy measure, we calculate the cost of holding excess reserves for India by looking at three different alternative uses of resources. We find that India is foregoing asmuch as 2% of its GDP by accumulating reserves instead of employing resources in alternative uses.

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File URL: http://www.eaber.org/node/22165
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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22165.

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Date of creation: Jan 2008
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Handle: RePEc:eab:financ:22165
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
  2. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2006. "Exchange Rate Volatility and Productivity Growth: The Role of Financial Development," CEPR Discussion Papers 5629, C.E.P.R. Discussion Papers.
  3. Aizenman, Joshua & Lee, Yeonho & Rhee, Yeongseop, 2004. "International reserves management and capital mobility in a volatile world: Policy considerations and a case study of Korea," Santa Cruz Center for International Economics, Working Paper Series qt1867f7ng, Center for International Economics, UC Santa Cruz.
  4. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
  5. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  6. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  7. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Center for International Economics, Working Paper Series qt3kj2w649, Center for International Economics, UC Santa Cruz.
  8. Christopher J. Neely, 2000. "Are changes in foreign exchange reserves well correlated with official intervention?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 17-32.
  9. Ila Patnaik, 2004. "India's Experience with a Pegged Exchange Rate," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 189-226.
  10. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Department of Economics, Working Paper Series qt9h27k0ff, Department of Economics, UC Santa Cruz.
  11. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Department of Economics, Working Paper Series qt3kj2w649, Department of Economics, UC Santa Cruz.
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