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Hoarding for Stormy Days - Test of International Reserves Providing Financial Buffer Services

Joshua Aizenman, Yothin Jinjarak

NBER Working Paper No. 25909
Issued in May 2019, Revised in March 2020
NBER Program(s):International Finance and Macroeconomics

This paper outlines a tractable cost-benefit analysis of the buffer stock financial services provided by international reserves and applies it to 8 of the largest Emerging Markets (BRICS, Indonesia, Mexico, Turkey) during 2000-2019. The 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. While the first-best policy calls for prudential regulations, 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

Published: Joshua Aizenman & Yothin Jinjarak, 2020. "Hoarding for stormy days—Test of international reserves adjustment providing financial buffer stock services," Review of International Economics, vol 28(3), pages 656-675.

 
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