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Keywords:International reserves 

Working Paper
International Reserves, Credit Constraints, and Systemic Sudden Stops

Why do emerging market economies simultaneously hold very high levels of international reserves and foreign liabilities? Moreover, why, even with such huge amounts of international reserves, did countries barely use them during the Global Financial Crisis? I argue that including international reserves as an implicit collateral for external borrowing in a small open economy model subject to exogenous financial shocks can explain both of these puzzling facts. I find that the model can obtain ratios of international reserves and net foreign liabilities to GDP similar to those of Latin American ...
International Finance Discussion Papers , Paper 1205

Working Paper
Reserves and Risk: Evidence from China

We consider if the Chinese accumulation of reserves is associated with unintended consequences in the form of increased private sector risk taking. Using sovereign credit default swap spreads and stock index prices as indicators of risk taking, we provide evidence to suggest that as reserve holdings increase, so does the willingness of the private sector to take on more risk. This is an important finding that adds credence to the suggestion that insurance through costly reserves, to be used in the event of a crisis, may lead to private sector actions that in and of themselves make it more ...
Globalization Institute Working Papers , Paper 387

Working Paper
Exchange Rate Policies at the Zero Lower Bound

We study how a monetary authority pursues an exchange rate objective in an environment that features a zero lower bound (ZLB) constraint on nominal interest rates and limits to international arbitrage. If the nominal interest rate that is consistent with interest rate parity is positive, the central bank can achieve its exchange rate objective by choosing that interest rate, a well-known result in international ?nance. However, if the rate consistent with parity is negative, pursuing an exchange rate objective necessarily results in zero nominal interest rates, deviations from parity, capital ...
Working Papers , Paper 740

Working Paper
A Macroprudential Theory of Foreign Reserve Accumulation

This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to over-borrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross section, and can quantitatively account for the ...
Working Papers , Paper 761

Working Paper
Scarcity of Safe Assets and Global Neutral Interest Rates

We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our ...
International Finance Discussion Papers , Paper 1293


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