International Reserves and Self-Insurance against External Shocks
IMF Working Papers, June 1, 2008
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Bibliographic details
- Authors: Régis Barnichon
- Published: June 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451870077.001
Summary
- This Working Paper develops an analytical framework to quantify the optimal level of international reserves for a small open economy with limited access to foreign capital and subject to natural disasters or terms of trade shocks.
- International reserves are modeled as a tool to relieve balance of payments pressures caused by external shocks and to avoid large fluctuations in imports.
- The model is calibrated to two regions: the Caribbean and the Sahel, and the sensitivity of the results is assessed.
Analytical framework and scope
- Focus: small open economy with limited access to foreign capital.
- Shocks considered: natural disasters and terms of trade shocks.
- Objective: quantify optimal international reserves for self-insurance against external shocks.
- Mechanism highlighted: reserves smooth balance of payments adjustments and stabilize import flows.
Calibration and empirical assessment
- Regions calibrated: the Caribbean and the Sahel.
- Assessment: sensitivity analysis of model results to alternative assumptions (details of sensitivity scenarios are developed in the paper).
Subjects and keywords
- Subject: Exports, Imports, International reserves, Natural disasters, Terms of trade
- Keywords: foreign exchange, opportunity cost, WP
Usage and access
- Format availability: PDF and more formats on IMF eLibrary.
- Additional services: IMF eLibrary (over 25,000 IMF publications), IMF Publications Newsletter.
International Reserves and Self-Insurance against External Shocks — IMF Working Paper No. 2008/149