Hoarding for Stormy Days - Test of International Reserves Providing Financial Buffer Services
NBER Working Paper No. 25909
This paper outlines a tractable cost-benefit analysis of the buffers stock financial services provided by international reserves, and applies it to 8 of the largest Emerging Markets (BRICS, Indonesia, Mexico, Turkey) during 2000Q1-2019Q1. Efficient management of international reserves generates sizable benefits for countries characterized by hard-currency external debt. These benefits increase with the volatility of the real exchange rates and sovereign spreads. Counter-cyclical management of hoarding reserves in good times and selling them in bad times provides buffers stock financial services adding up to about 3% of GDP during our sample period.
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Document Object Identifier (DOI): 10.3386/w25909