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Optimal Reserves in the Eastern Caribbean Currency Union

  • Wendell A. Samuel
  • Emilio Pineda
  • Mario Dehesa
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    Recent turbulence in global and Caribbean regional financial markets underscore the importance of reassessing the adequacy of international reserves held by the Eastern Caribbean Central Bank (ECCB). Using the Jeanne (2007) optimization framework, this paper finds that international reserves held by the ECCB are generally adequate for a variety of external current account and capital account shocks. However, the ECCB would be challenged in the event of moderate to severe deposit outflows.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/77.

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    Length: 20
    Date of creation: 01 Apr 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/77
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    1. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
    2. Glenn D. Rudebusch & Brian P. Sack & Eric T. Swanson, 2007. "Macroeconomic implications of changes in the term premium," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 241-270.
    3. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-14, June.
    4. Dani Rodrik, 2006. "The social cost of foreign exchange reserves," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 253-266.
    5. Aizenman, Joshua & Marion, Nancy P., 2003. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Santa Cruz Department of Economics, Working Paper Series qt9s7978n1, Department of Economics, UC Santa Cruz.
    6. International Monetary Fund, 2008. "Foreign Reserve Adequacy in Sub-Saharan Africa," IMF Working Papers 08/150, International Monetary Fund.
    7. Holger Floerkemeier & Mariusz A. Sumlinski, 2008. "International Reserve Trends in the South Caucasus and Central Asia Region," IMF Working Papers 08/41, International Monetary Fund.
    8. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," NBER Working Papers 12788, National Bureau of Economic Research, Inc.
    9. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
    10. Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
    11. Fernando M. Gonçalves, 2007. "The Optimal Level of Foreign Reserves in Financially Dollarized Economies; The Case of Uruguay," IMF Working Papers 07/265, International Monetary Fund.
    12. Pablo Druck & Mario Dehesa, 2008. "The Eastern Caribbean Central Bank; Challenges to An Effective Lender of Last Resort," IMF Working Papers 08/214, International Monetary Fund.
    13. 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.
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