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International Reserves and Self-Insurance against External Shocks

Author

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  • Régis Barnichon

Abstract

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. 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. I calibrate the model to two regions, the Caribbean and the Sahel, and assess the sensitivity of the results.

Suggested Citation

  • Régis Barnichon, 2008. "International Reserves and Self-Insurance against External Shocks," IMF Working Papers 08/149, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/149
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=22001
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    References listed on IDEAS

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    1. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    2. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
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    Cited by:

    1. Ilan Noy & Christopher Edmonds, 2016. "The Economic and Fiscal Burdens of Disasters in the Pacific," CESifo Working Paper Series 6237, CESifo Group Munich.
    2. Winston Moore & Adrian Glean, 2016. "Foreign exchange reserve adequacy and exogenous shocks," Applied Economics, Taylor & Francis Journals, vol. 48(6), pages 490-501, February.
    3. Heng, Dyna & Corbett, Jenny, 2011. "What Drives Some Countries to Hoard Foreign Reserves?," MPRA Paper 48552, University Library of Munich, Germany, revised Oct 2011.
    4. Nicole Laframboise & Boileau Loko, 2012. "Natural Disasters; Mitigating Impact, Managing Risks," IMF Working Papers 12/245, International Monetary Fund.
    5. Heng, Dyna, 2011. "Does financial development reduce the motivation to hoard foreign reserves?," MPRA Paper 48555, University Library of Munich, Germany, revised 2012.

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