International Reserve Management under Rollover Crises

Barbosa-Alves, Mauricio; Bianchi, Javier; Sosa-Padilla, César

doi:10.21034/wp.805

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;

https://doi.org/10.21034/wp.805