Do Reserve Portfolios Respond to Exchange Rate Changes Using a Portfolio Rebalancing Strategy? An Econometric Study Using COFER Data

 
Author/Editor: Lim, Ewe-Ghee
 
Publication Date: December 01, 2007
 
Electronic Access: Free Full text (PDF file size is 287KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
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: This paper tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones. The paper finds empirical support for the strategy, in particular that dollar depreciation/appreciation results in rebalancing switches vis-a-vis the other major reserve currency, the euro; valuation changes in the minor currencies tend to result in switches among themselves. The finding implies that currency diversifications in response to exchange rate changes have thus far tended to be stabilizing for exchange markets; it also helps explain the relative stability of reserve currency shares.
 
Series: Working Paper No. 07/293
Subject(s): Exchange rates | Reserves | euro | U.S. dollar | Exchange markets

Author's Keyword(s): Reserves | portfolio rebalancing | Dollars | Euros | COFER
 
English
Publication Date: December 01, 2007
Format: Paper
Stock No: WPIEA2007293 Pages: 22
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org