NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Reserves in Financially Closed Economies

Olivier Jeanne, Damiano Sandri

NBER Working Paper No. 22139
Issued in March 2016
NBER Program(s):   IFM

Financially closed economies insure themselves against current-account shocks using international reserves. We characterize the optimal management of reserves using an open-economy model of precautionary savings and emphasize several results. First, the welfare-based opportunity cost of reserves differs from the measures often used by practitioners. Second, under plausible calibrations the model is consistent with the rule of thumb that reserves should be close to three months of imports. Third, simple linear rules can capture most of the welfare gains from optimal reserve management. Fourth, policymakers should place more emphasis on how to use reserves in response to shocks than on the reserve target itself.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22139

Published: Olivier Jeanne & Damiano Sandri, 2016. "Optimal Reserves in Financially Closed Economies," IMF Working Papers, vol 16(92).

Users who downloaded this paper also downloaded* these:
Fryer w22130 The Production of Human Capital in Developed Countries: Evidence from 196 Randomized Field Experiments
Farmer and Zabczyk w22135 The Theory of Unconventional Monetary Policy
Aguiar, Chatterjee, Cole, and Stangebye w22125 Quantitative Models of Sovereign Debt Crises
Brunnermeier and Sannikov w22133 On the Optimal Inflation Rate
Wieland and Yang w22141 Financial Dampening
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us