International Reserve Adequacy in the Gambia
IMF Working Papers, September 1, 2010
Source details
- Canonical URL
- International Reserve Adequacy in the Gambia
Other formats
Bibliographic details
- Authors: Eugen Tereanu
- Published: September 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455208807.001
Summary and objective
- Applies intertemporal models of precautionary saving to compute an optimal level of international reserves for The Gambia.
- Focuses on current account shocks specific to a low-income economy with a significant import component.
- Complements a more standard, rule-of-thumb reserve adequacy assessment.
- Central result: a suggested central range from 4.5 months to 7 months of imports, which is broadly aligned with the recent actual coverage.
- Emphasizes that parameter sensitivity affects results but that simulations enable more informed policy decisions balancing flexibility with a prudent approach to reserve use.
Methodology
- Uses intertemporal models of precautionary saving tailored to:
- Current account shocks.
- Characteristics of a low-income, import-dependent economy.
- Complements rule-of-thumb coverage indicators with model-based optimal reserve calculations.
Key findings and statistics
- Central recommended reserve range: 4.5 months to 7 months of imports.
- Alignment: The central range is broadly aligned with recent actual reserve coverage in The Gambia.
- Pages: 16
- Volume: 2010
- Issue: 215
- Series: Working Paper No. 2010/215
- DOI: https://doi.org/10.5089/9781455208807.001
- Stock No: WPIEA2010215
- ISBN: 9781455208807
- ISSN: 1018-5941
Policy implications and recommendations
- Use model-based simulations alongside rule-of-thumb indicators to inform reserve policy.
- Balance flexibility in reserve use with a prudent, precautionary approach given parameter sensitivity.
- Account explicitly for import dependence and current account shock profiles when setting reserve targets.
Subject coverage and keywords
- Subjects: Central banks, Consumption, Imports, International reserves, International trade, National accounts, Reserve positions, Reserves accumulation, Terms of trade
- Keywords include: adequacy assessment, adequacy indicator, Balance of payments, consumption, coverage indicator, coverage ratio, Gambia, import coverage indicator, Imports, International reserves, lower bound, lower bound for the opportunity cost, open economy, opportunity cost, Optimal reserves, precautionary motive, Precautionary savings, reserve, Reserve adequacy, reserve adequacy indicator, reserve coverage, Reserve positions, Sub-Saharan Africa, Terms of trade, West Africa, WP, yield
International Reserve Adequacy in the Gambia, Eugen Tereanu, IMF Working Papers 2010, 215 (2010).