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Hoarding for stormy days—Test of international reserves adjustment providing financial buffer stock services
Author(s) -
Aizenman Joshua,
Jinjarak Yothin
Publication year - 2020
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12466
Subject(s) - buffer stock scheme , hoarding (animal behavior) , economics , stock (firearms) , currency , volatility (finance) , monetary economics , stock exchange , finance , business , financial system , macroeconomics , foraging , mechanical engineering , ecology , engineering , biology
This paper outlines a tractable cost‐benefit analysis of the buffer stock financial services provided by international reserves (IR) and applies it to eight of the largest Emerging Markets (BRICS, Indonesia, Mexico, Turkey) during 2000–2019. The efficient management of IR generates sizable benefits for countries characterized by hard‐currency external debt. These benefits increase with the volatility of the real exchange rates and sovereign spreads. While the first‐best policy calls for prudential regulations, counter‐cyclical management of hoarding reserves in good times and selling them in bad times provides buffers stock financial services adding up to about 3% of the gross domestic product during our sample period.