Assessing Reserve Adequacy in Low-Income Countries
Occasional Papers, March 8, 2013
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Bibliographic details
- Authors: Valerio Crispolti, Era Dabla-Norris, Jun I Kim, Kazuko Shirono, George C. Tsibouris
- Published: March 8, 2013
- Series: Occasional Papers
- DOI: https://doi.org/10.5089/9781616354121.084
Overview and scope
- Focus: analysis of a range of external shocks faced by low-income countries, including sharp swings in the terms of trade, export demand, natural disasters, and volatile financial flows.
- Pages: 78
- Series: Occasional Paper No. 2013/002
- Volume: 2013
- Issue: 002
- DOI: https://doi.org/10.5089/9781616354121.084
- ISBN: 9781616354121
- ISSN: 0251-6365
- Authors: Valerio Crispolti, Era Dabla-Norris, Jun I Kim, Kazuko Shirono, George C. Tsibouris
- Publication date: March 8, 2013
Key findings on shocks, volatility, and welfare
- Low-income countries routinely experience exogenous disturbances—sharp swings in the terms of trade, export demand, natural disasters, and volatile financial flows—that contribute to higher volatility in aggregate output and consumption compared with other countries.
- The analysis begins with the impact of external shocks on macroeconomic growth, volatility, and welfare.
- Evidence suggests that low-income countries with reserve coverage above three months of imports were better able to smooth consumption and absorption in the face of external shocks compared with those with lower reserve holdings.
- The analysis highlights the importance of country characteristics and vulnerabilities in assessing reserve adequacy.
Role of reserves and policy context
- Although sound macroeconomic and prudential policy frameworks are identified as the first line of defense for limiting vulnerability, international reserves are presented as the main form of self-insurance against external shocks.
- Reserve adequacy assessment should account for:
- reserve coverage measured in months of imports (with three months of imports noted as a meaningful threshold in the evidence)
- country-specific characteristics and vulnerabilities that affect shock transmission and resilience
Subject areas and keywords
- Subject areas: Central banks, Consumption, Conventional peg, Exchange rate arrangements, Exchange rate flexibility, Foreign exchange, Imports, National accounts, Reserve positions, Reserves accumulation
- Keywords include: Caribbean, Consumption, cost, East Asia, event study analysis, Exchange rate arrangements, Exchange rate flexibility, external shock, Global, IMF staff calculation, Middle East, OP, optimal reserve, reserve, reserve holding, Reserve positions, Reserves accumulation, Sub-Saharan Africa, terms-of-trade shock
Source: Assessing Reserve Adequacy in Low-Income Countries (Occasional Paper No. 2013/002), International Monetary Fund, March 8, 2013.