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Optimal Reserves in the Eastern Caribbean Currency Union

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  • Wendell A. Samuel
  • Emilio Pineda
  • Mario Dehesa

Abstract

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.

Suggested Citation

  • Wendell A. Samuel & Emilio Pineda & Mario Dehesa, 2009. "Optimal Reserves in the Eastern Caribbean Currency Union," IMF Working Papers 09/77, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/77
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    References listed on IDEAS

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    1. Dani Rodrik, 2006. "The social cost of foreign exchange reserves," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 253-266.
    2. Joshua Aizenman & Nancy Marion, 2004. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Economic Journal, Royal Economic Society, vol. 114(497), pages 569-591, July.
    3. 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.
    4. 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.
    5. 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.
    6. International Monetary Fund, 2008. "Foreign Reserve Adequacy in Sub-Saharan Africa," IMF Working Papers 08/150, International Monetary Fund.
    7. Pablo F 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.
    8. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," IDB Publications (Working Papers) 1947, Inter-American Development Bank.
    9. 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.
    10. 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.
    11. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-514, June.
    12. 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.
    13. Pemberton, James, 1996. "Growth trends, cyclical fluctuations, and welfare with non-expected utility preferences," Economics Letters, Elsevier, vol. 50(3), pages 387-392, March.
    14. 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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    Cited by:

    1. Winston Moore & Adrian Glean, 2016. "Foreign exchange reserve adequacy and exogenous shocks," Applied Economics, Taylor & Francis Journals, vol. 48(6), pages 490-501, February.
    2. Cerezo Aguirre, Sergio Cerezo Aguirre, 2010. "Consideraciones sobre el nivel óptimo de reservas internacionales para Bolivia: 2003-2009," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 14, pages 41-70.
    3. repec:taf:oaefxx:v:4:y:2016:i:1:p:1147119 is not listed on IDEAS

    More about this item

    Keywords

    Eastern Caribbean Currency Union; Capital flows; Economic models; Emerging markets; Reserves; Monetary unions; Optimal Reserves; ECCU; Reserve Adequacy; banking; current account; central bank; external debt;

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