This paper tests the importance of precautionary and mercantilist motives in accounting for the hoarding of international reserves by developing countries, and provides a model that quantifies the welfare gains from optimal management of international reserves. While the variables associated...

This paper investigates the factors explaining exchange market pressures (EMP) and the hoarding and use of international reserves (IR) by emerging markets during the 2000s, as the Great Moderation turned to the 2008-9 global crisis and great recession. According to our results, both financial...

This paper examines the degree to which the learning by doing externality [LBD] calls for an undervalued exchange rate, a policy suggested by recent empirical studies which concluded that mildly undervalued real exchange rate may enhance growth. We obtain mixed results. For an economy where LBD...

The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism -- hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia...

Ongoing international financial integration has greatly increased foreign asset holdings across countries, enhancing the scope for a "valuation channel" of external adjustment (i.e., the changes in a country's net foreign asset position due to exchange rate and asset price changes). We examine...

Three large current account imbalances -- one deficit (the United States) and two surpluses (Japan and the Euro area) -- are subjected to a minimalist structural interpretation. Though simple, this interpretation enables us to assess how much of each of the imbalances require a real exchange...

A sticky-price model is used to motivate a structural VAR analysis of the current account and the real exchange rate for seven major industrialized countries (the US, Canada, the UK, Japan, Germany, France and Italy). The analysis is distinguished from previous work in that it adopts minimal...

I. International reserves escrow accounts: Managing international reserves provides an effective mechanism for self insurance. The hazard of this mechanism is that international reserves are easy prey for opportunistic policy makers in polarized countries characterized by political instability....

This paper studies the experience of Latin-America [LATAM] with financial liberalization in the 1990s. The rush towards financial liberalizations in the early 1990s was associated with expectations that external financing would alleviate the scarcity of saving in LATAM, thereby increasing...