IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

A Simple Dynamic-Control Macro Model to Examine the Behavior of International Reserves for Selected Economies

  • James P. Gander
Registered author(s):

    The purpose of the paper is to show the construction of a simple dynamic-control macromodel, using an economy-wide preference (utility) function as the objective function with two variables, national income and international reserves. National income is the control variable and reserves is the state variable. The first-order equilibrium condition at each instant of time, t, shows that the two variables optimally must grow at different rates for it to be satisfied. The model is applied to the empirical data on income and reserves by examining the behavior of the ratio of income to reserves for a selected number of mature and developing economies over the time period 1970 to 2011. For both types of economies, the model shows that there is a trade-of f between income and reserves based on the utility function. However, for mature economies the trade-off is such that the ratio of income to reserves is trending upwards while for the developing economies the ratio is trending downwards. In either case, the model fits the data. The policy implications are briefly discussed within the context of the existing literature on international reserves.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2013_11.

    in new window

    Length: 14 pages
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:uta:papers:2013_11
    Contact details of provider: Postal: 1645 E. Central Campus Dr. Front, Salt Lake City, UT 84112-9300
    Phone: (801) 581-7481
    Fax: (801) 585-5649
    Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. 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.
    2. Arnaud Costinot & Guido Lorenzoni & Iv�n Werning, 2014. "A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 77 - 128.
    3. Petar Vujanovic, 2011. "Understanding the Recent Surge in the Accumulation of International Reserves," OECD Economics Department Working Papers 866, OECD Publishing.
    4. Bar-Ilan, Avner & Marion, Nancy P. & Perry, David, 2007. "Drift control of international reserves," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3110-3137, September.
    5. Guillermo Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2013. "Optimal Holdings of International Reserves: Self-insurance against Sudden Stops," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-35, January-j.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:uta:papers:2013_11. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.