International Reserve Management under Rollover Crises
This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we find that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads. Evidence from a panel of emerging economies is consistent with these predictions: increases in reserves financed by public external borrowing are associated with lower spreads, and reserve holdings are not systematically drawn down during crisis episodes.
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Copy CitationMauricio Barbosa-Alves, Javier Bianchi, and César Sosa-Padilla, "International Reserve Management under Rollover Crises," NBER Working Paper 32393 (2024), https://doi.org/10.3386/w32393.Download Citation
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