TY  - JOUR
AU  - Obstfeld,Maurice
AU  - Shambaugh,Jay C.
AU  - Taylor,Alan M.
TI  - Financial Stability, the Trilemma, and International Reserves
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14217
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14217
L1  - http://www.nber.org/papers/w14217.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu

Jay C. Shambaugh
George Washington University
Elliot School for International Affairs
1957 E Street, N.W. Suite 502
Washington, D.C. 20052
Tel:  202/994-9208
E-Mail: jshambaugh@gwu.edu

Alan M. Taylor
Department of Economics
University of Virginia
Monroe Hall
Charlottesville, VA 22903
Fax: (434) 982-2904
E-Mail: alan.m.taylor@virginia.edu
AB  - The rapid growth of international reserves---a development concentrated in the emerging markets---remains a puzzle. In this paper we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt.
ER  -