A Simple Dynamic-Control Macro Model to Examine the Behavior of International Reserves for Selected Economies
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.
|Date of creation:||2013|
|Date of revision:|
|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: http://economics.utah.edu
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.:
- Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2008.
"Financial Stability, the Trilemma, and International Reserves,"
NBER Working Papers
14217, National Bureau of Economic Research, Inc.
- 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.
- Obstfeld, Maurice & Shambaugh, Jay C & Taylor, Alan M., 2008. "Financial Stability, the Trilemma, and International Reserves," CEPR Discussion Papers 6693, C.E.P.R. Discussion Papers.
- Petar Vujanovic, 2011. "Understanding the Recent Surge in the Accumulation of International Reserves," OECD Economics Department Working Papers 866, OECD Publishing.
- Arnaud Costinot & Guido Lorenzoni & Iván Werning, 2011.
"A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation,"
NBER Working Papers
17680, National Bureau of Economic Research, Inc.
- Arnaud Costinot & Guido Lorenzoni & Iván 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.
- Guillermo Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2013.
"Optimal Holdings of International Reserves: Self-insurance against Sudden Stops,"
Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-35, January-j.
- Guillermo A. Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2012. "Optimal Holdings of International Reserves: Self-Insurance against Sudden Stop," NBER Working Papers 18219, National Bureau of Economic Research, Inc.
- 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.
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 references are entirely missing, you can add them using this form.