Are Emerging Asia’s Reserves Really Too High?
August 1, 2008
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: 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
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.
Subject: Capital flows, External debt, International reserves, Reserves accumulation, Sudden stops
Keywords: adequacy indicator, broad money, level of reserve, reserve accumulation, reserve buildup, reserve threshold coefficient, short-term debt, WP
Pages:
34
Volume:
2008
DOI:
Issue:
192
Series:
Working Paper No. 2008/192
Stock No:
WPIEA2008192
ISBN:
9781451870503
ISSN:
1018-5941
