Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies

Author/Editor: Choi, Woon Gyu ; Sharma, Sunil ; Strömqvist, Maria
Publication Date: July 01, 2007
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Disclaimer: 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. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This 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, but 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, we also provide evidence that the sensitivity of reserves to net capital flows increased with globalization for emerging markets while it decreased for advanced countries.
Series: Working Paper No. 07/151
Subject(s): Capital flows | Financial integration | Reserves | Liquidity

Author's Keyword(s): International reserves | capital flows | financial integration | sovereign liquidity | stockpiling motive | panel data
Publication Date: July 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007151 Pages: 36
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