Accumulation of Foreign Currency Reserves and Risk-Taking

Abstract

We assess whether the accumulation of foreign currency reserves in the Asia-Pacific region may have unintended consequences in the form of increased private sector risk-taking. To do so we carry out a country-specific daily data event study analysis of the relationship between official announcements of reserves stocks and various proxy measures of risk-taking. Overall, our results suggest that reserves accumulation exerts no significant influence on risk-taking.

Keywords: foreign exchange reserves; risk-taking; implied volatility; credit default swaps

JEL Classification: F31, G15