Precautionary Reserves: An Application to Bolivia

March 1, 2010

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Format: Chicago

Fabian Valencia. Precautionary Reserves: An Application to Bolivia, (USA: International Monetary Fund, 2010) 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

Using precautionary savings models we compute levels of optimal reserves for Bolivia. Because of Bolivia's reliance on commodity exports and little integration with capital markets, we focus on current account shocks as the key balance of payments risk. These models generate an optimal level of net foreign assets ranging from 29 to 37 percent of GDP. For comparison purposes, we contrasted these results with standard rule of thumb measures of reserve adequacy, which in the case of Bolivia resulted in substantially lower levels of adequate reserves. These differing results emphasize the need to appropriately account for country-specific risks in order to derive adequate measures of reserve buffers.

Subject: Consumption, External debt, Foreign assets, Income, Terms of trade

Keywords: Central bank, Precautionary motive, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/054
Stock No:

WPIEA2010054
ISBN:

9781451963502
ISSN:

1018-5941

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