International Reserve Holdings: Interest Rates Matter!

Ball, Christopher P.; Reyes, Javier A.

doi:10.2139/ssrn.922054

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International Reserve Holdings: Interest Rates Matter!

11 Pages Posted: 8 Aug 2006

See all articles by Christopher P. Ball

Javier A. Reyes

University of Arkansas - Sam M. Walton College of Business

Date Written: June 2006

Abstract

We argue that the literature on optimal international reserve holdings in an era of high capital mobility fails to find interest rates are strongly significant factor because of the endogeneity of interest rates and reserves under fixed exchange rate regimes. Using two stage least squares we control for this and regain statistical significance for interest rates.

Keywords: International reserves, Buffer stock model, Exchange rate regimes, Endogeneity

JEL Classification: E42, F31, F41

Suggested Citation: Suggested Citation

Ball, Christopher P. and Reyes, Javier A., International Reserve Holdings: Interest Rates Matter! (June 2006). Available at SSRN: https://ssrn.com/abstract=922054 or http://dx.doi.org/10.2139/ssrn.922054