{
  "title": "Do Reserve Portfolios Respond to Exchange Rate Changes Using a Portfolio Rebalancing Strategy? An Econometric Study Using COFER Data",
  "publication": "IMF Working Papers, December 1, 2007",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/do-reserve-portfolios-respond-to-exchange-rate-changes-using-a-portfolio-rebalancing-21504",
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  "summary": "This paper tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones.",
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      "heading": "Summary and main findings",
      "content": "- Research question: Tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones.\n- Primary empirical findings:\n  - The paper finds empirical support for the portfolio rebalancing strategy.\n  - Dollar depreciation/appreciation results in rebalancing switches vis-a-vis the other major reserve currency, the euro.\n  - Valuation changes in the minor currencies tend to result in switches among themselves.\n- Interpretation:\n  - Currency diversifications in response to exchange rate changes have thus far tended to be stabilizing for exchange markets.\n  - The findings help explain the relative stability of reserve currency shares."
    },
    {
      "heading": "Methodology and scope (as described)",
      "content": "- Data source: COFER (Currency Composition of Official Foreign Exchange Reserves) data.\n- Approach: Econometric testing of reserve portfolio responses to exchange rate changes, interpreted through a portfolio rebalancing strategy framework."
    },
    {
      "heading": "Policy-relevant implications",
      "content": "- Stabilizing effect: Observed rebalancing behavior implies that reserve managers’ currency diversifications have contributed to exchange market stability.\n- Understanding reserve currency shares: The rebalancing behavior provides an explanation for the relative stability of reserve currency shares over time.\n\n---\n\n Content in this bundle\n\n- wp07293\n  - wp07293 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp07293 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/do-reserve-portfolios-respond-to-exchange-rate-changes-using-a-portfolio-rebalancing-21504"
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    "Authors: Ewe-Ghee Lim",
    "Published: December 1, 2007",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451868562.001",
    "Research question: Tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones.",
    "Primary empirical findings:",
    "Interpretation:",
    "Data source: COFER (Currency Composition of Official Foreign Exchange Reserves) data.",
    "Approach: Econometric testing of reserve portfolio responses to exchange rate changes, interpreted through a portfolio rebalancing strategy framework.",
    "Stabilizing effect: Observed rebalancing behavior implies that reserve managers’ currency diversifications have contributed to exchange market stability.",
    "Understanding reserve currency shares: The rebalancing behavior provides an explanation for the relative stability of reserve currency shares over time.",
    "**_wp07293**"
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