Holding International Reserves in an Era of High Capital Mobility

April 1, 2002

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Format: Chicago

Robert P Flood, and Nancy P. Marion Holding International Reserves in an Era of High Capital Mobility, (USA: International Monetary Fund, 2002) accessed December 26, 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

Why do countries hold so much international reserves? Global reserve holdings (excluding gold) were equivalent to 17 weeks of imports at the end of 1999. That is almost double what they were at the end of 1960 and about 20 percent higher than they were at the start of the 1990s. In this paper we study countries’ reserve holdings in light of both the increased financial volatility experienced in the last decade and diminished adherence to fixed exchange rates. We find that buffer-stock reserve models work about as well in the modern floating-rate period as they did during the Bretton Woods regime. During both periods, however, the models’ fundamentals explain only a small portion (10-15 percent) of reserves volatility.

Subject: Central banks, Exchange rates, Financial institutions, Foreign exchange, Gold reserves, Imports, International reserves, International trade, Stocks

Keywords: Adjustment cost, Capital mobility, Exchange rates, Global, Gold reserves, Holding, Imports, International reserves, Lower bound, Reserve authority, Reserve holding, Stocks, Volatility measure, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/062
Stock No:

WPIEA0622002
ISBN:

9781451848298
ISSN:

1018-5941

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