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Foreign reserve holdings: an extended study through risk-inspired motives

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  • Shijaku, Gerti
  • Dushku, Elona

Abstract

This paper examines the demand for foreign reserve holdings for the Albanian small open economy. The model is estimated through the Vector Error Correction Model approach. Results provide supportive evidence that reserve accumulation is more sensitive to precautionary motives rather than mercantilist ones. Other results reconfirm that current account patterns and fiscal imbalances are the main driving forces behind reserve holding. By contrast, reserve was yet again found less sensitive regarding the opportunity cost and mercantilist motives.

Suggested Citation

  • Shijaku, Gerti & Dushku, Elona, 2017. "Foreign reserve holdings: an extended study through risk-inspired motives," MPRA Paper 79199, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79199
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    File URL: https://mpra.ub.uni-muenchen.de/79199/1/MPRA_paper_79199.pdf
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    References listed on IDEAS

    as
    1. Shijaku, Gerti, 2016. "The role of money as an important pillar for monetary policy: the case of Albania," MPRA Paper 79088, University Library of Munich, Germany.
    2. Molina, Danielken & Roa, Monica, 2014. "The Effect of Credit on the Export Performance of Colombian Exporters," MPRA Paper 56137, University Library of Munich, Germany.
    3. Shijaku, Gerti, 2012. "Optimal level of reserve holding: an empirical investigation in the case of Albania," MPRA Paper 79091, University Library of Munich, Germany.
    4. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
    5. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration," NBER Working Papers 14026, National Bureau of Economic Research, Inc.
    6. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration," NBER Working Papers 14026, National Bureau of Economic Research, Inc.
    7. Ramachandran, M., 2006. "On the upsurge of foreign exchange reserves in India," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 797-809, October.
    8. Cavallo, Eduardo A. & Frankel, Jeffrey A., 2008. "Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1430-1452, December.
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    More about this item

    Keywords

    Foreign reserve holdings; trade openness; short-term capital movements; VECM;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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