TY  - JOUR
AU  - Alfaro,Laura
AU  - Kanczuk,Fabio
TI  - Optimal Reserve Management and Sovereign Debt
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13216
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13216
L1  - http://www.nber.org/papers/w13216.pdf
N1  - Author contact info:
Laura Alfaro
Harvard Business School
Morgan Hall 263
Soldiers Field
Boston, MA 02163
Tel: 617/495-7981
Fax: 617/496-5985
E-Mail: lalfaro@hbs.edu

Fabio Kanczuk
University of São Paulo
R. Dr Alberto Cardoso de Melo Neto 110/131A
Sao Paulo-S.P.-CEP 01455-100
BRAZIL
Tel: 55-11-3814-9749
E-Mail: kanczuk@usp.br
AB  - To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model that incorporates willingness-to-pay incentive problems. In this setup, debt and assets are not perfect substitutes, as reserves can be used even after a country has defaulted. We calibrate the model to a sample of emerging markets. We obtain that the reserve accumulation does not play a quantitatively important role in this model. In fact, the optimal policy is not to hold reserves at all. This finding is robust to considering interest rate shocks, sudden stops, contingent reserves and reserve dependent output costs.
ER  -