Are Emerging Asia’s Reserves Really Too High?

WPIEA2008192 Image
Price:  $18.00

Author/Editor: Marta Ruiz-Arranz, Milan Zavadjil
Release Date: © August, 2008
ISBN : 978-1-45187-050-3
Stock #: WPIEA2008192
English
Stock Status: Available

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Description

Empirical analysis does not suggest that reserves are "too high" in the majority of Asian countries, though China may be a special case. Much of the reserve increase in Asia can be explained by an optimal insurance model under which reserves provide a steady source of liquidity to cushion the impact of a sudden stop in capital inflows on output and consumption. Moreover, the benefits of reserves in terms of reduced spreads on privately held external debt further explains the observed growth in reserves since 1997-98. Using threshold estimation techniques, the paper shows that most of Asia can still benefit from higher reserves in terms of reduced borrowing costs.

Taxonomy

Consumption , Economic development , Economic policy , Monetary policy , Reserves




More publications in this series: Working Papers


More publications by: Marta Ruiz-Arranz ; Milan Zavadjil