IMF Working Papers

International Reserves and Rollover Risk

By Javier Bianchi, Juan Carlos Hatchondo, Leonardo Martinez

January 31, 2013

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Javier Bianchi, Juan Carlos Hatchondo, and Leonardo Martinez. International Reserves and Rollover Risk, (USA: International Monetary Fund, 2013) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.

Subject: Asset and liability management, Balance of payments, Bonds, Central banks, Debt refinancing, Financial institutions, National accounts, Personal income, Reserves accumulation, Sudden stops

Keywords: Bonds, Borrowing cost, Debt duration, Debt issuance, Debt level, Debt refinancing, Debt statistic, Global, Gross capital flows, Income loss, International reserves, Long-duration bond, Personal income, Reserve holding, Reserves accumulation, Rollover risk, Short-term debt, Sovereign default, Sudden stops, WP

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2013/033

  • Stock No:

    WPIEA2013033

  • ISBN:

    9781475571295

  • ISSN:

    1018-5941

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