NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration

Joshua Aizenman, Daniel Riera-Crichton

NBER Working Paper No. 12363
Issued in July 2006, Revised in February 2007
NBER Program(s):International Finance and Macroeconomics, International Trade and Investment

This paper evaluates the impact of international reserves, terms of trade shocks and capital flows on the real exchange rate (REER). We observe that international reserves cushions the impact of TOT shocks on the REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. Financial depth reduces the buffer role of IR in developing countries. Developing countries REER seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER.

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Document Object Identifier (DOI): 10.3386/w12363

Published: Aizenman, Joshua and Daniel Riera-Crichton. "Real exchange rate and international reserves in the era of growing financial and trade integration." Review of Economics and Statistics 90, 4 (2008): 812-815.

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