Working Paper

International Reserve Management under Rollover Crises

Abstract: 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 uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads.

Keywords: International reserves; rollover crises; Sovereign debt;

JEL Classification: E40; F34; F32; E50; F41;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2024-04-17

Number: 805