Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies

38 Pages Posted: 23 Aug 2007

See all articles by Woon Gyu Choi

Woon Gyu Choi

International Monetary Fund (IMF)

Sunil Sharma

George Washington University - Elliott School of International Affairs; International Monetary Fund (IMF)

Maria Strömqvist

Brummer & Partners

Date Written: July 2007

Abstract

This paper examines the interaction between capital flows and international reserve holdings in the context of increasing financial integration. For emerging markets the sensitivity of reserves to net capital flows was negative in the 1980s, but became positive after the Asian crisis when these countries used net capital flows to build up reserves. For advanced countries, net capital flows had a negative effect on reserves, especially in recent years. Using measures of financial globalization, we also provide evidence that the sensitivity of reserves to net capital flows increased with globalization for emerging markets while it decreased for advanced countries.

Keywords: Working Paper, Capital flows, Financial integration, Reserves, Liquidity

Suggested Citation

Choi, Woon Gyu and Sharma, Sunil and Strömqvist, Maria, Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies (July 2007). IMF Working Paper No. 07/151, Available at SSRN: https://ssrn.com/abstract=1007900

Woon Gyu Choi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Sunil Sharma

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

International Monetary Fund (IMF) ( email )

Research Department
700 19th Street NW
Washington, DC 20431
United States

Maria Strömqvist (Contact Author)

Brummer & Partners ( email )

Stockholm
Sweden

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