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Exchange Rate Implications of Reserve Changes: How Non-EZ European Countries Fared during the Great Recession

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  • Kathryn M. E. Dominguez

    (University of Michigan and NBER)

Abstract

The relationships between exchange rates, capital controls and foreign reserves during the financial crisis suggest that reserve management plays a much more central role than has typically been emphasized in international finance models. Reserves seem to be especially important for non-EZ European countries, not only for those with currencies in the ERM II, but also for those European countries in intermediate regimes that hope to deter currency market pressure, and in so doing help to mitigate trilemma trade-offs.

Suggested Citation

  • Kathryn M. E. Dominguez, 2014. "Exchange Rate Implications of Reserve Changes: How Non-EZ European Countries Fared during the Great Recession," Working Papers 647, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:647
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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r647.pdf
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    References listed on IDEAS

    as
    1. Dominguez, Kathryn M.E. & Hashimoto, Yuko & Ito, Takatoshi, 2012. "International reserves and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 388-406.
    2. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
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    5. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
    6. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    7. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 193-221, National Bureau of Economic Research, Inc.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    9. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 317-367.
    10. 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.
    11. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    12. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 317-367.
    13. Olivier Jeanne & Romain Rancière, 2011. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," Economic Journal, Royal Economic Society, vol. 121(555), pages 905-930, September.
    14. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," American Economic Review, American Economic Association, vol. 99(2), pages 480-486, May.
    15. Carmen M. Reinhart & Vincent R. Reinhart, 2008. "Capital Inflows and Reserve Accumulation: The Recent Evidence," NBER Working Papers 13842, National Bureau of Economic Research, Inc.
    16. repec:diw:diwwpp:dp1343 is not listed on IDEAS
    17. Sebastian Auguste & Kathryn M.E. Dominguez & Herman Kamil & Linda L. Tesar, 2002. "Cross-Border Trading as a Mechanism for Capital Flight: ADRs and the Argentine Crisis," William Davidson Institute Working Papers Series 513, William Davidson Institute at the University of Michigan.
    18. Dominguez, Kathryn M.E., 2012. "Foreign reserve management during the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2017-2037.
    19. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.
    20. 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. J. Lawrence Broz & Maya J. Duru & Jeffry A. Frieden, 2016. "Policy Responses to Balance-of-Payments Crises: The Role of Elections," Open Economies Review, Springer, vol. 27(2), pages 207-227, April.
    2. Jean-Pierre Allegret & Audrey Allegret, 2018. "The role of international reserves holding in buffering external shocks," Applied Economics, Taylor & Francis Journals, vol. 50(29), pages 3128-3147, June.
    3. Quy Ta & Yothin Jinjarak & Ilan Noy, 2022. "“How Do Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes”," Open Economies Review, Springer, vol. 33(5), pages 945-971, November.
    4. Kathryn M. E. Dominguez, 2020. "Revisiting Exchange Rate Rules," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 693-719, September.
    5. Kathryn M. E. Dominguez, 0. "Revisiting Exchange Rate Rules," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 0, pages 1-27.

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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