Foreign Reserve Adequacy in Sub-Saharan Africa

June 1, 2008

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Format: Chicago

Foreign Reserve Adequacy in Sub-Saharan Africa, (USA: International Monetary Fund, 2008) accessed September 19, 2024

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 looks at the question of adequacy of reserves in sub-Saharan African countries in light of the shocks faced by these countries. Literature on optimal reserves so far has not paid attention to the particular shocks facing low-income countries. We use a two-good endowment economy model facing terms of trade and aid shocks to derive the optimal level of reserves by comparing the cost of holding reserves with their benefits as an insurance against a shock. We find that the optimal level of reserves depends upon the size of these shocks, their probability, and the output cost associated with them,

Subject: Aid flows, Consumption, International reserves, Terms of trade, Trade balance

Keywords: Open economy, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/150
Stock No:

WPIEA2008150
ISBN:

9781451870084
ISSN:

1018-5941

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