Are Emerging Asia's Reserves Really Too High?
36 Pages Posted: 12 Sep 2008
Date Written: August 2008
Abstract
Empirical analysis does not suggest that reserves are too high in the majority of Asian countries, though China may be a special case. Much of the reserve increase in Asia can be explained by an optimal insurance model under which reserves provide a steady source of liquidity to cushion the impact of a sudden stop in capital inflows on output and consumption. Moreover, the benefits of reserves in terms of reduced spreads on privately held external debt further explains the observed growth in reserves since 1997-98. Using threshold estimation techniques, the paper shows that most of Asia can still benefit from higher reserves in terms of reduced borrowing costs.
Keywords: Asia and Pacific, Reserves, Liquidity, Capital inflows, Production, Consumption, External debt, Emerging markets
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Holding International Reserves in an Era of High Capital Mobility
-
International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
Seigniorage and Political Instability
By Alex Cukierman, Sebastian Edwards, ...
-
International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
The High Demand for International Reserves in the Far East: What's Going on?
-
The High Demand for International Reserves in the Far East: What's Going on?
-
The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications
By Olivier Jeanne and Romain G. Rancière
-
The Social Cost of Foreign Exchange Reserves
By Dani Rodrik
-
The Social Cost of Foreign Exchange Reserves
By Dani Rodrik