Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies
IMF Working Papers, July 1, 2007
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- Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies
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Bibliographic details
- Authors: Sunil Sharma, Woon Gyu Choi, Maria Strömqvist
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867152.001
Main findings
- The paper examines the interaction between capital flows and international reserve holdings in the context of increasing financial integration.
- For emerging markets:
- The sensitivity of reserves to net capital flows was negative in the 1980s.
- The sensitivity became positive after the Asian crisis when these countries used net capital flows to build up reserves.
- For advanced countries:
- Net capital flows had a negative effect on reserves, especially in recent years.
- Using measures of financial globalization:
- The sensitivity of reserves to net capital flows increased with globalization for emerging markets.
- The sensitivity of reserves to net capital flows decreased with globalization for advanced countries.
Policy-relevant implications
- Emerging markets’ reserve accumulation behavior shifted post-Asian crisis toward using net capital inflows to build reserves, implying precautionary motives and policy responses to crisis experience.
- Advanced economies showed a negative relationship between net capital flows and reserves, particularly in recent years, suggesting differing reserve management strategies and financial integration effects compared with emerging markets.
- Financial globalization modifies the sensitivity of reserves to capital flows heterogeneously across country groups; policy design should account for these divergent effects.
Publication and metadata
- Authors: Sunil Sharma, Woon Gyu Choi, Maria Strömqvist
- Date: July 1, 2007
- Series: IMF Working Papers
- Series identifier: Working Paper No. 2007/151
- Issue: 151
- Volume: 2007
- Pages: 36
- DOI: https://doi.org/10.5089/9781451867152.001
- Stock No: WPIEA2007151
- ISBN: 9781451867152
- ISSN: 1018-5941
- Subject: Capital flows, Emerging and frontier financial markets, Exchange rate arrangements, Financial integration, International capital markets
- Keywords: GDP, net capital, net capital flow, opportunity cost, WP
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.