Accounting for Reserves

December 21, 2012

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Format: Chicago

Tamim Bayoumi, and Christian Saborowski. Accounting for Reserves, (USA: International Monetary Fund, 2012) accessed December 24, 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

Views on the effectiveness of sterilized reserve intervention vary. Sterilized intervention is generally seen as ineffective in advanced countries while persistent intervention by some emerging markets is often cited as contributing to undervalued exchange rates and current account surpluses. This paper argues that capital controls reconcile these views. We find strong and highly robust evidence that sterilized intervention is fully offset by outflows of private money in countries without controls, while controls partially block this offset. For a country with extensive capital controls, every dollar in additional reserves increases the current account by some 50 cents. This is mainly offset by an opposite adjustment in the current account of the United States—the dominant reserve currency issuer with the deepest and most liquid bond markets—with a smaller diversion to other emerging markets.

Subject: Balance of payments, Capital account, Capital controls, Central banks, Current account, International reserves, Reserves accumulation

Keywords: Capital account, Capital controls, Current account, Deviation from US, Explanatory variable, Global, Global imbalances, International reserves, Intervention, Percent, Percent change, Percent deviation, Percent GDP, Reserve accumulation, Reserve currency, Reserves accumulation, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/302
Stock No:

WPIEA2012302
ISBN:

9781475535761
ISSN:

1018-5941

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