Motivated by the tension first revealed during the global financial crisis between the
domestic and international financial stability obligations of central bank reserve managers,
this paper offers some reflections along four main lines. First, the paper highlights how
official reserve management has evolved to mirror important aspects of private
institutional investor behavior over time, and addresses the policy relevance of this
convergence. Second, evidence is documented of procyclical portfolio behavior by reserve
managers during the crisis, which added to the stabilization burden shouldered by central
banks in reserve currency-issuing countries. Third, in appraising the evolution of related
vulnerabilities since the crisis, the paper finds grounds for both cautious optimism and
lingering concern, the balance of which points to an uncertain future resolution. Fourth,
some potential remedies are presented to help dampen the procyclical impulses of reserve
managers in future periods of international financial turbulence.
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