Countries' capital account policies might be contagious in the sense that domestic policies are driven by other countries' policies. A model of strategic interactions is developed to show that countries' best response to policy changes elsewhere consists in imitating this policy. Using a spatial...

Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially...