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... Identifying the motives of EMEs to accumulate high-size international reserves has been increasingly examined by several empirical studies since the mid-1990s. However, the theoretical considerations can be carried to the pioneering work of Heller (1966) which deals with determining the optimal level of reserve holdings. Heller (1966) identifies the optimum level of reserve holdings as the amount that minimizes the total cost of adjusting for and financing external imbalances. ...
... However, the theoretical considerations can be carried to the pioneering work of Heller (1966) which deals with determining the optimal level of reserve holdings. Heller (1966) identifies the optimum level of reserve holdings as the amount that minimizes the total cost of adjusting for and financing external imbalances. Thus, the propensity to import, the cost of holding reserves, and imbalances in the balance of payments can be listed as the main determinants of the optimal level of international reserves. ...
... Another contribution to the theoretical setting is from Frenkel & Jovanovic (1981) which explains that reserves have an accommodating role in tackling the volatility of external transactions and holding an optimal level of reserves can play a buffer-stock role. Heller (1966) and Frenkel & Jovanovic (1981) prioritize the active role of trade shocks in holding international reserves and launch the importance of precautionary motives. However, recent theoretical studies have paid more attention to financial shocks as well. ...
This study examines whether global liquidity and risk matter for the international reserve accumulation in 46 countries characterized as Emerging Market Economies (EMEs) by the International Monetary Fund (IMF) from 2000 to 2019. By using panel data techniques and a broad dataset based on Lane and Milesi-Ferretti's (2022) External Wealth of Nations II database and various data sources for global factors, this paper first shows that global liquidity is positively associated with international reserve holdings. Second, in consideration of greater reliance on financial factors, it tests the joint effects of capital inflows, capital controls, and global factors and provides evidence that countries tend to accumulate larger international reserves as (i) external liabilities grow in periods of abundant global liquidity and (ii) capital control policy tightens in periods of high confidence loss. Finally, this work questions which type of capital inflow has a greater impact on international reserve holdings and whether the drivers of reserve accumulation evolved over the sample period. The results suggest that countries respond to FDI inflows more than other inflows, and the impacts of global liquidity and risk become more apparent between 2008 and 2019.
... Uluslararası rezerv talebine ilişkin yazında bir taraftan talebi belirleyen değişkenler tespit edilmeye çalışılırken, diğer taraftan ise talep fonksiyonlarının istikrarı ele alınmıştır. Rezerv talebinin kuramsal belirleyicileri olarak dış ticaret düzeyi (Triffin, 1947), dış ticaretin oynaklığı (Machlup, 1966;Heller, 1966) ve yurtiçi para arzı (Jonhson, 1965) tartışılmıştır. Heller (1966) ise uluslararası rezerv talebinin ithalat eğilimi ( ) ve rezerv tutmanın fırsat maliyeti ( ) ile belirlendiğini ileri sürmüştür. ...
... Rezerv talebinin kuramsal belirleyicileri olarak dış ticaret düzeyi (Triffin, 1947), dış ticaretin oynaklığı (Machlup, 1966;Heller, 1966) ve yurtiçi para arzı (Jonhson, 1965) tartışılmıştır. Heller (1966) ise uluslararası rezerv talebinin ithalat eğilimi ( ) ve rezerv tutmanın fırsat maliyeti ( ) ile belirlendiğini ileri sürmüştür. ...
... İthalat eğilimi ( ) uluslararası rezerv talebine ilişkin çalışmalarda yer bulan bir diğer önemli açıklayıcı değişken olmuştur. Bu değişken kaynağını, Heller (1966)'in, düzeltmenin marjinal maliyetinin, marjinal ithalat eğiliminin tersine (1⁄ ) eşit olması gerektiği yönündeki iddiasında bulmuştur. Buna göre, marjinal ithalat eğiliminde bir artış uluslararası rezerv talebinde azalışa neden olmalıdır. ...
In the literature it has been predicted that flexibility in exchange rate regimes causes a decrease in international reserves demand. However, the realization does not support this prediction, and it is seen that the demand for international reserves has been increasing in almost all economies. In this study, after the aforementioned determination is made, in order to understand the reason for this, international reserve demand theory, empirical studies and determination of optimal reserves level are examined respectively. For this purpose, theories discussing why central banks hold reserves are evaluated comparatively, and then, what empirical studies point to is analysed in detail. The main determinants of international reserve demand are considered in three groups: the probability of a country to experience a crisis, the damage to the economy in case of a foreign payment difficulties due to a crisis, and the opportunity cost of holding reserves. In this study, both the reserve demand and the interactions of these three elements are discussed in detail. It has been seen that a more flexible exchange rate regime does not enable central banks to demand less reserves but causes a significant increase in speed of reserve-money balance adjustment.
... After Triffin (1946)'s introduction, it is possible to divide the theory of demand for international reserves into two main branches. The microeconomic approach can be started with Heller (1966) who proposed a measure for optimal level for reserves and Olivera (1969) who offered a theory on demand for international reserves using Baumol (1952)'s square root rule where main determinants are adjustment and opportunity costs. And, the macroeconomic approach can be started with global monetarism from Johnson (1965). ...
... Machlup (1966) examined Triffin's reserves to imports ratio and argued that the demand for reserves is linked not on Triffin's level but on the variability of trade. Heller (1966) argued that optimal level of international reserves emerges when the total cost of adjusting and financing a payment disequilibrium is minimum. Accordingly, a country that accumulates international reserve as insurance, such as financing deficits and speculation, will discover that the marginal benefit of keeping extra international reserve goes down, as the marginal cost of not keeping them goes up. ...
... Higher target foreign reserve means less rapid adjustment (smaller γ), whereas a higher R Ã also means less income in terms of foregone investment. Lizondo and Mathieson (1987) added an optimizing module to the Heller's (1966) model, and by this way, the pace of adjustment for net international reserve position has been added into the function. Ben-Bassat and Gottlieb (1992) claimed that the adjustment costs of a fall in central banks' international reserves, reducing GDP and so imports, cannot catch the cost of default matched by an economy that is borrowing international reserves. ...
Carbon emission refers to the release of carbon gas into the atmosphere. As can be understood from the definition, carbon emissions mainly cause air pollution. Polluted air also threatens the health of living things. As can be seen, carbon emission is a problem that needs to be solved urgently. In this context, many countries are trying to take measures to reduce carbon emissions. Carbon emissions do not only cause air pollution. For example, carbon emissions cause significant problems in the country’s economy. First, because of the increase in people getting sick due to air pollution, serious job losses occur in the country. This situation leads to a decrease in the production volume of the country. In addition, the profitability of firms with reduced workforce is likely to decline. As a result, the country’s economic growth will be negatively affected. In addition, the increase in the number of patients in the country because of carbon emissions will increase the health expenditures of the country. Finally, carbon emissions cause a decrease in foreign investments in the country. It is obvious that air pollution caused by carbon emissions reduces the quality of life in the country. In this context, there has been an increase in sensitivity to environmental factors worldwide, especially in recent years. This situation makes the carbon emission problem more important. The amount of carbon emission has started to affect the image of countries. In this framework, foreign investors have started to pay attention to environmental pollution issues while choosing the country they will invest in. As can be understood from this, it is obvious that countries that do not take measures to address the carbon emission problem will experience a decrease in their foreign investments soon. Therefore, it is necessary to avoid the carbon emission problem. Carbon emissions can be prevented by legal regulations and sanctions. Sanctions may be imposed on companies that cause carbon emissions. Additional tax may be imposed on nonrenewable energies. Since these types of energy pollute the air with carbon emissions, it may be possible to collect a carbon tax. In this way, the cost advantage of nonrenewable energy types will disappear.KeywordsCarbon emissionFossil fuelsCarbon taxClean energy
... It was around this period that studies on the determinants of demand for international reserves sparked remarkable interest amongst researchers. One notable study was by Heller (1966) who revealed that international reserves are hoarded to reduce adjustment costs that would be incurred if no reserves were held, though the cost is balanced against the opportunity cost of holding these reserves. This confirmed key tenets of the buffer stock model of demand. ...
... Additionally, a higher marginal propensity to import (MPI) was found to reduce reserves demand since the marginal cost of adjustment is lowered. Factors that quickly surfaced in the search for determinants of international reserves include variability of international receipts and payments (Clower & Lipsey, 1968;Kenen & Yudin, 1965); propensity to import (Clark, 1970;Heller, 1966;Kelly, 1970); and the size of international transactions (Frenkel, 1978). However, like in many other previous studies, propensity to import -representing the degree of opennessappeared with a positive coefficient, contrary to popular expectations. ...
... Later, Frenkel (1981) in a stochastic framework to explore optimal international reserves used the Ordinary Least Squares (OLS) estimation technique for 22 developing countries from 1971 to 1975 and found imports as well as opportunity and adjustment costs to be significant determinants, in line with both Hume's (1752) price-specie-flow and the buffer stock model. Building on the work by Heller (1966), Frenkel and Jovanovic (1981) proposed reserve volatility as a proxy for adjustment costs. Although Frenkel (1983) discovered that international reserves were increasing even with the floating of currencies in 1973, it was later observed that the likely cause of the paradox was the prevalent capital account liberalization (Grimes, 1993). ...
What explains the unprecedented high levels of foreign reserves accumulated in the Southern African Development Community (SADC)? This study seeks to econometrically establish the key determinants of such high levels of reserves. To do so, the study adopts two panel estimation techniques: the Blundell-Bond System Generalized Method of Moments (GMM) and the Bias-Corrected Least Squares Dummy Variable (LSDVC). The regression results show evidence of precautionary (mainly reserves volatility) but not mercantilist motives in the SADC region. Inertial and opportunity cost elasticities of reserves demand are observed to be inelastic in both econometric models at about 0.85 and-0.70 respectively. The GMM identifies membership to the Common Monetary Area (CMA) as a significant factor, as member countries of these sub-groupings demand more reserves to meet subsequent reserve targets. In addition, while GMM results reveal a U-shaped relationship between reserves hoarding and national income, the LSDVC finds income to have no influence on demand, an observation attributed to strength of instruments within the GMM. From the regression results, the study finds that empirical works on demand for reserves need to clearly distinguish between the alternative measures of reserves-either including or excluding gold; a measurement difference that has typically been ignored in the literature. Various policy implications are drawn from the results.
... The traditional approach puts forward some indicators that could be used in adjudging reserves adequacy. These indicators include ratio of foreign reserves to imports (import cover), ratio of foreign reserves to short-term debt, ratio of foreign reserves to broad money (M2) and combination metrics (Heller, 1966;IMF, 2003). This approach has been criticized for assuming linearity and lacking micro-founded optimization (Rodriguez and Funk, 2012;Molapo, 2014). ...
... For instance, Triffin (1960) andIMF (2000) propose import cover reserve adequacy which could be the ratio of reserve to import or 4 months of import covering reserves. Heller (1966) and IMF (2003) recommend foreign reserves that could meet up short-term debt obligation. Similarly, Greenspan (1999) suggests that emerging countries should maintain foreign reserve that is related to their short-term external debt obligation. ...
... Only few studies incorporate the mercantile view into their modeling of optimal foreign reserves. The work of Heller (1966) which forms the seminal work in this area states that optimal reserve is attained when marginal cost is equated with marginal benefit from holding reserve. He perceives optimal reserves as a function of variables such as the external debt, level of imports, the opportunity cost of holding reserves, the probability of default and the output cost of default. ...
This study adopts the ’buffer stock model’ advanced by Frenkel and Jovanovic (1981) to estimate the optimal level of foreign reserves for Nigeria. The Autoregressive Distributed Lag Approach (ARDL) was used to estimate the optimal foreign reserves function. The results show that the Nigeria’s optimal reserves level responses to adjustment cost of holding reserves and exchange rate volatility and that import and opportunity cost of reserves holding have insignificant impact on Nigeria’s optimal foreign reserves. The short run and long run estimates of the buffer stock model support the theory that foreign reserves holding in Nigeria is more sensitive to the precautionary than mercantilist motives of holding reserves. Thus, it is recommended that the Central Bank of Nigeria (CBN) should implement effective foreign reserves policies that consider exchange rate volatility, oil price volatility and global macroeconomic imbalances.
... The issue related to international reserves attract researchers from the very beginning of the nineteenth century and was widely discussed theoretically and empirically where (Heller H. R., 1966) is assumed as the pioneer. Based on the traditional cost-benefit analysis and using a panel of 60 cross-country data for the period of 1949-63 Heller explained the demand for IR as an optimizing approach. ...
... The international reserves are defined differently in previous literature. Most opted (Heller H. R., 1966) emphasizes two qualities of IR: (i) "they must be acceptable at all times to foreign economic units for payment of financial obligations and (ii) their value-expressed in foreign units of account-should be known with certainty." But the total official reserves are the broadest definition of IR which include both currency and non-currency reserves (gold, Special Drawing Rights (SDR), the reserve position at the IMF, and other reserve assets) (Dominguez, Hashimoto, & Ito, 2012). ...
Global reserves accumulation experienced impressive gains following the late 1990s Asian financial crisis that undermined not only the Asian economies but also the world. Since then, only 49 Asian countries are contributing more than 60% of global hoarding and this trend has been considered from various insights of the international policy agenda. But the logic behind this enormous accumulation is still a matter of serious debate among researchers which is examined in this paper. The empirical estimation based on the unbalanced panel of 49 Asian countries from the period of 1999-2021 confirms precautionary motive as the best illustrator of holding reserves. Asian countries hold reserves as a safeguard against temporary external imbalances and uncertainty in the balance of payment. Against the popular myth that export, or GDP growth has no effect on reserve accumulation. However, exchange rate stability has some effect. Social Science Review, Vol. 40(1), Jun 2023 Page 203-221
... More comprehensive studies of reserves demand was developed in post 1973 period (e.g. Heller andKhan, 1978, Edwards 1985). In the recent years a few studies have accommodated a large number of variables related to capital account of Balance of Payment (e.g. ...
... However measurement of the cost is not an easy task and in the literature different measures have been used to capture the cost trend (e.g. Heller (1966), Kenen and Yudin (1965), Iyoha (1976), Frenkel and Jovanovic (1981), Edwards (1985), Coppin (1994), Huang, (1995), and Badinger (2004)). Considering the limitation in this case, present study follows Badinger (2004), and uses interest rate spread in the model. ...
The surge in international reserves holding in India has crossed prescribed limit suggested by the standard established benchmarks. According to the rule of thumb proposed by Kim et al. (2005) in 2004-05, the excess reserves holding stood at eighty two billion US dollar that marginally reduces to seventy eight billion US dollar in 2005-06. Our measurement suggests that the cost of holding excess reserves was quite high and stood at about 4.75 and 3.50 percent of GDP in 2004-05 and 2005-06 respectively. In the next stage the study analyses the demand function of India's reserves holdings. In the function, we include the sensitive part of the capital account and monetary disequilibrium with the traditional determinants of reserves. Utilizing cointegration and VECM approach on Indian quarterly data, we find evidences for both precautionary as well as mercantile motive behind holding reserves in India.
... In the model, IR allowed the country to smooth domestic absorption in response to sudden stops, but yielded a lower return than the interest rate on the country's long-term debt. There are studies such as Triffin (1946), Heller (1966) and IMF (2002) which provide the empirical investigation of the optimum level IR. The advantage of Jeanne and Rancière (2006) measure is that it decomposes the reserves into a component that can be justified as an insurance against sudden stops. ...
... The paper starts by determining the adequate IR in Lesotho. Triffin (1946), IMF (2002IMF ( , 2003 and Heller (1966) among others noted that the models which assume optimal reserves should be that which could finance the gap between demand and supply of foreign currency, smoothen external payments imbalances and prevent exchange rate crisis. In principle, the adequacy of reserves is assessed by their capacity to prevent or mitigate external shocks. ...
Literature has addressed the issue of choosing reserves levels in the context of models based on traditional adequacy ratio. Above that, this study employs the model of Jeanne and Rancière (2006), which captured the unique characteristics of a country, and effects of a small and large external shocks portrayed that international reserves in Lesotho are kept at level higher than the optimum level. The results outlined that optimum level of reserves for Lesotho is on average 44 per cent of GDP for a small crisis and 47 per cent of GDP for a larger crisis. Subsequently, this leads to the conclusion that the amount of reserves exceeding the level of backing assets could be managed under a more return-oriented investment strategy in order to minimize the opportunity cost of reserves holding. Since there is evidence of excess funds, the authorities should strengthen the implementation capacity of the annual capital budgets by evolving a forceful and vigorous monitoring and evaluation framework in order to accomplish the National Vision 2020 goals. This will also create an opportunity to allocate resources to the National Strategic Development Plan (NSDP) which provides overall national strategic thrust from 2012 to 2016.
... Its share in World's total foreign exchange reserves is also rising every year. Below Table 1 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 3.2 | Previous empirical findings Heller (1966) opine that international reserves are held for precautionary motives. In a succeeding work, Heller (1968) observes that transaction demand rises as the trade volume of a country significantly increases. ...
... This study adds to the recent empirical literature on determinants of foreign exchange reserves. We find that in the case of Brazil, the long-run relationship exists between foreign exchange reserves, current account balance to GDP ratio, debt to GDP ratio, domestic credit to the private sector as a percentage of GDP, Heller (1966Heller ( , 1968, Officer (1976), Thorn (1967), Claassen (1975), Lizondo and Mathieson (1987), Bokhari and Jalil (2008) among others. The variables in the study also share a short-run causal relationship ascertained through the Granger Causality test. ...
This paper examines the determinants of foreign exchange reserves of Brazil for the period 1960–2018. We use empirically robust auto‐regressive distributed lag (ARDL) bounds testing methodology to trace the determinants of foreign exchange reserves of Brazil. We incorporate other relevant variables in the model such as current account balance to GDP ratio, debt to GDP ratio, domestic credit to the private sector as a percentage of GDP, exchange rate, inflation, per capita GDP and real interest rate with foreign exchange reserves in impacting its size in Brazil. We find that long‐run relationship exists between foreign exchange reserves, current account balance to GDP ratio, debt to GDP ratio, domestic credit to the private sector as a percentage of GDP, exchange rate, inflation, per capita GDP and real interest rate. However, we find that variables under study also have unidirectional short‐run causality. Hence, the policymakers to give special attention to the fact maintain a foreign exchange reserve which is optimum keeping in mind their developmental needs.
... Research on international reserves had started during 1960s, particularly when Heller (1966) presented the estimations of the optimum level of international reserves by comparing marginal cost to marginal benefit. Strong justifications have been provided to hold reserves so it is important to analyse the determinants of international reserves. ...
... Strong justifications have been provided to hold reserves so it is important to analyse the determinants of international reserves. The issue of the determination of reserves has broadly been discussed in the literature Heller (1966), Frenkel and Jovanovic (1981), Lane and Burke (2001), Flood et al. (2001), Irefin and Yaaba (2012), Kenen and Yudin (1965), Kelly (1970), Frenkel (1974, Grubel (1971), Heller and Khan (1978), Clark (1970), Bassat and Gottlieb (1992), Chin-Hong et al. (2011), Courchene and Youssef (1967), Edwards (1983), Huang and Shen (1999), Lizondo and Mathieson (1987), Lane and Burke (2001), Aizenman and Marion (2002), Eichengreen and Mathieson (2000), Romero (2005), Obstfeld et al. (2009), Prabheesh et al. (2007, Sehgal and Sharma (2008) and Gantt (2010). These studies had some explanatory variables as determinants of international reserves through empirical research. ...
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. Abstract Purpose-The purpose of this paper is to explore the determinants of international reserves in Algeria using economic growth and real effective exchange rate variables. The paper used quarterly data from 1985Q1 to 2014Q4. Design/methodology/approach-The study employs autoregressive distributed lag (ARDL) approach known as the bounds testing method. The ARDL technique works well for small sample studies also. The current study assesses the influence of economic growth and real effective exchange rates on international reserves in Algeria by evaluating both short-run and long-run dynamics. Findings-The study establishes a long-run relationship between international reserves, economic growth and real effective exchange rate. It also reveals that economic growth has a positive impact on international reserves while real effective exchange rate shows a negative effect. Originality/value-This paper tries to provide a complete picture of the determinants of international reserves in Algeria. Foreign trade policy makers of Algeria can use the model estimated here to draw pertinent policies regarding international reserves.
... Various economies and exchange rate regimes examine the connection between foreign exchange reserves and import demand. According to Heller (1966), the opposing connection theory states that a high inclination to import lowers the demand for international reserves since it results in a lower marginal adjustment cost. Frenkel (1974) countered, establishing a positive correlation between reserve holdings and the size of the foreign trade sector, which indicates vulnerability to external shocks. ...
This study investigates the relationship between Türkiye’s imports and foreign exchange reserves, aiming to provide detailed information about Türkiye’s economic dynamics by using data from October 2002 to July 2022 and several robust methodologies, including ARDL Bound tests, Johansen co-integration tests, FMOLS, DMOLS and VECM Granger. The findings reveal a stable long-term balance between imports and foreign exchange reserves and a bidirectional causality that enriches the understanding of the dynamic interaction. This study advances the academic discourse on Türkiye’s economic resilience and provides valuable information to policymakers navigating the complex landscape of import-reserve dynamics in Türkiye.
... In principle, countries hold reserves in order to meet unexpected and temporary fluctuations in international payments. In this context, the optimal size of reserves depends on the balance between the macroeconomic adjustment costs arising from reserves depletion and the opportunity cost of holding reserves (Heller 1966). Thus, a country's demand for reserves will increase with its risk aversion and output volatility (Gosselin and Parent 2005). ...
... There are various studies on different aspects of international reserves such as Heller (1966), Frenkel and Jovanovic (1981), Jeanne and Ranciere (2006), and Jeanne (2007) on the optimum size of currency reserves; Aizenman and Marion (2003), Aizenman and Lee (2007), Cheung andIto (2009), andObstfeld, Shambaugh andTaylor(2010) on the determinants of demand for reserves using various explanatory variables; Drummond, Mrema, Roudet and Saito (2009) on the motives for holding reserves; and Rodrik (2006), Bar-Ilan and Lederman (2007), Marion (2009), Heller (1976), Khan (1979), Ho andMcCauley (2009), Hviding, Nowak andRicci (2004), Zhou (2009), and Banchs and Mollejas (2010) on the various impacts of reserve accumulation including policy implications. ...
In recent years, many emerging countries have been accumulating substantial amount of international reserves by outpacing traditional benchmark in response to a series of financial crises in the world. In this context, this paper constructs a dynamic macro model with new monetary policy rule to examine the implications of international reserve accumulation for macroeconomic outcomes such as economic growth and inflation. Such a macro model is empirically examined in the data of South Asian countries, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka by using Panel VAR method for the period of 1990-2014. The empirical results show that increase in international reserves tends to cause higher economic growth in these countries but without significant impact on inflation. This implies that these countries can move further utilizing the accumulated international reserves productively which will enhance economic growth and maintain internal and external balances.
... It has been suggested by McKinnon (1963), Heller (1966), and Kreinin and Heller (1974) that the degree of openness as measured by the ratio of traded goods to the total output of the economy plays an important role in the choice between fixed and flexible exchange rates. For instance, in order to eliminate a balance of payments deficit under fixed exchange rates with aggregate demand policies, it is necessary to deflate the economy by an amount which is inversely related to the propensity to import. 2 According to this theory, closed economies, characterized by a small foreign trade sector, will find it relatively costly to adjust to external imbalances via domestic inflation or deflation and will therefore prefer the less costly exchange rate adjustment. ...
... Relevant contributions are i.a. Heller (1966), Dooley et al. (2003), Rodrik (2006), Aizenman and Lee (2008), Calvo et al. (2012), Goldberg et al. (2013). ...
During recent years, central banks have increased the levels of their international reserves at an unprecedented pace. In this paper, we introduce new country-specific reserve data and examine determinants of the composition of international reserves. Using a dataset of 36 countries (and the euro area) for the years from 1996 to 2016, we identify currency pegs and trade patterns as determinants of currency compositions. Our results emphasize the importance of transaction motives for the composition of currency reserves. The euro crisis appears to have been a setback for the euro, which temporarily seemed to challenge the US dollar as the most important international reserve currency and potentially impacted the determination of international reserve compositions.
... Thus, relatively large reserves can help avoid an unfavorable judgment of financial markets by diverting it to the neighboring economies when contagious financial turmoil sweeps through the region. 3,4 1 For earlier work on the buffering role of reserves to smooth balance-of-payment shocks and adjustment processes, see Heller (1966), Kelly (1970), and Frenkel and Jovanovic (1981). 2 Popular arguments include a precautionary motive to hedge against sudden capital inflow reversals (Ben-Bassat and Gottlieb, 1992a;Durdu et al., 2009;Jeanne and Rancière, 2011), a mercantilist motive to improve external competitiveness (Aizenman and Lee, 2007;Dooley et al., 2003), exchange rate stabilization (Aizenman and Riera-Crichton, 2008;Calvo and Reinhart, 2002;Hviding et al., 2004), and the prevention of capital flight by domestic residents (Obstfeld et al., 2010). Ghosh et al. (2014) review changing motives for holding reserves in emerging markets since the 1980s. ...
This article analyzes the international reserve accumulation behavior of emerging and developing economies facing “keeping‐up‐with‐the‐Joneses” externalities. I first document empirical evidence for a significant Joneses effect, which has been particularly persistent in Asia and Latin America since the late 1990s. This peer‐pressure motive could encourage excess reserve hoarding, providing a rationale for cooperation. I then develop a theoretical model of the borrowing economy featuring the Joneses effect and the interdependence between reserves and domestic capital investment. Numerical results show that international cooperation can effectively internalize negative externalities associated with competitive reserve hoarding and induce welfare‐enhancing resource allocations.
... Over the decades, the debates on the determinants of international reserves have generated considerable arguments in academic papers. Heller (1966) proposed national product, interest rate and relevant components of money stock as the major determinants of international reserves considering South Africa data. In addition, Aizenman and Lee (2007) categorized determinants of international reserves into two: the mercantilist motives and precautionary concerns. ...
Despite huge petroleum revenues with high development needs, the growth of international reserves in OPEC countries has been negligible. This study examined the impact of educational factors using different levels of literacy in stimulating the macroeconomic determinants of international reserves in OPEC member countries using data from 2008 to 2018 from World Bank Development Indicators for 15 member countries. The study used a dynamic panel model, and the data were analyzed using System of Generalized Method of Moments (SGMM). The results show that educational levels such as adult literacy, youth literacy, tertiary and secondary enrollment mitigate the negative impact of the exchange rate and stimulate the impact of crude oil prices, while tertiary enrollment stimulates the impact of foreign direct investment and reduces the negative impact of economic crises. Overall, youth literacy was most significant for these economies, while economic crises were significantly positive at all levels as a major determinant of international reserve accumulation. Therefore, it was concluded that education contributes to the economy's accumulation of more reserves. In particular, the study recommended that national governments provide adequate funding for the education sector to improve the quality of education at the junior and high school levels in order to provide adequate knowledge and skills to enhance foreign investment.
... The early empirical work was focused on establishing direct proportions between reserves and other macroeconomic variables. Hence, Heller (1966) analyzed the determinants of the foreign exchange reserves and he concluded that reserves are mostly held for liquidity motives and that propensity to import is the main driver of the level of the reserves. He developed a cost-benefit model to analyze the effect of adjustments to external equilibriums, according to which the optimal level of reserves depends on the costs of adjusting to an external balance, the cost of holding the liquid international reserves and the probability that there will actually be a need for reserves. ...
... However, if one accepts that the traditional capital adequacy ratio is deficient for the assessment of a dollarized economy and if one shifts to using the appropriate ratio measurement for a dollarized country, one cannot fail to discover that Lebanon was effectively for years exposed to currency crisis. The importance of assessing the level of FX for their adequacy against sudden stop, has been investigated extensively in a series of IMF studies (2012, 2013, 2015 and 2016) and by several economists [54], [55], [56], [39], [57], [40] . Accordingly, the IMF today regards adequacy of FX reserves as one of the most insightful EWI for a country's vulnerability. ...
Everything (126 references) about dollarization:
-Dollarization and monetary policy
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-Why & when is hard peg (full dollarization or currency board) needed?
--Dollarization exaples in the world
-FAQ: frequently asked questions or critics about currency board or full dollarization
... al. (2004) argued that reserve accumulation agenda in Asian central banks was to prevent their currencies from appreciating against the U.S. dollar in order to promote their export-led growth strategy.In principle, countries hold reserves in order to meet unexpected and temporary fluctuations in international payments. In this context, the optimal size of reserves depends on the balance between the macroeconomic adjustment costs that result if reserves are exhausted and the opportunity cost of holding reserves (Heller, 1996). ...
This study analysed the policy implications of external reserve on economic growth in Nigeria using time series data from 1980 to 2014. The study utilized Multiple Linear Regression analysis, Analysis of Variance (ANOVA), Augmented Dickey Fuller (ADF) Test, Johansen Cointegration Methods. The results of the Augmented Dickey Fuller test, showed that the data became stationary at the first difference thus, integrated of order one while the Johansen Cointegration method was used to test for the existence of long run relationship among the variables and the results showed that there is a presence of long run relationship between external reserve and economic growth. The results of the Multiple Linear Regression analysis showed that the estimated coefficient of the predictor variable, external reserve (EXTSV) was 3.42. By implication, a unit increase in External reserve resulted to an increase in economic growth by US$3.42billion in Nigeria. The policy implication of this is that measures that will enhance the stability in the amount of foreign reserve should be encouraged. Additionally, policies should be geared toward a permanent (long-run) increase in reserves rather than temporarily exchange reserve. It was recommended that the government should always be prepared to have a hedge against unforeseen periods of macroeconomic instability or external shocks by making policies that focus on more accumulation of the external reserves. One of the ways by which this can be done is to increase exports and reduce imports.
... The literature on exchange reserves is wide, starting with discussion of the optimality of and motivation for reserve accumulation. The growth trend in exchange reserves observed during the past decades raises numerous questions regarding its optimality and effect on the national economy, including the motivation behind reserve accumulation and reserve management (Heller, 1966;Kenen & Yudin, 1965;Kelly, 1970;Frenkel & Jovanovic, 1981;Dooley et al., 2003;Aizenman & Lee, 2007; for a detailed discussion see Bošnjak et. al. (2019)). ...
This issue of Economic Annals presents a second collection of articles from a workshop on “The Comparative Economics of Transition in South East Europe” that took place at the University of Belgrade’s Faculty of Economics in September 2019. The Workshop was organised by Economic Annals in collaboration with the European Association for Comparative Economic Studies (EACES) and was dedicated to the memory of Professor Božidar Cerović, the former Editor-in- Chief of this journal, who sadly passed away in September 2018. The articles in this issue are revised versions of selected papers that have been through a rigorous peer review process, and which form a substantial collection of articles focusing on aspects of economic transition in Central and South East Europe.
In the first article, Peter Howard-Jones and Jens Hölscher investigate the influence of the neoliberal Washington Consensus programme, internalised by the EU as a reform agenda, on the new member states of Central and Eastern Europe in comparison with other transitional economies in the region. They analyse the effect of EU membership and set of control variables on the productivity of firms in the two groups of countries. The authors find that upon accession to the EU, the neoliberal reform agenda was instrumental in attracting increased levels of foreign direct investment (FDI), promoting trade, investment and innovation, all of which provided a productivity boost to firms in these countries. However, over time these advantages dissipated. In explaining this effect, the authors point to the role of international production networks (global supply chains) in creating an over-reliance on imported inputs which reduced value-added and hindered productivity-boosting spill-overs to domestic firms in the new member states.
The development gap between the EU member states of Central Europe and the Baltics, compared to the non-EU member states in the Balkans, is further explored in the second article by Grigorias Zarotiadis who focuses on the influence of FDI flows in explaining divergent economic performance between the two groups of countries. His analysis uses a general equilibrium model of imperfect competition to identify the macroeconomic impacts of FDI. His theoretical model addresses the ways in which endogenous factors create reinforcing effects that attract FDI to the more advanced transition countries, and conversely repel FDI from the less advanced countries. The analysis shows how FDI interacts with initial economic conditions to produce divergent paths of development. On the basis of the model he identifies a category of ‘infant economies’ which, lacking substantial initial manufacturing capacity, experience difficulty in catching up with other economies.
The impact of macroeconomic policies on economic development in Serbia since the onset of transition in 2000 is analysed in the third article by Miroljub Labus. He frames the analysis within the context of three consecutive policy regimes, characterised by neo-liberal, populist and interventionist policies. He compares and evaluates these policy regimes using quarterly data on twenty macroeconomic indicators classified into five groups: macroeconomic stability, domestic, foreign, financial and labour markets. As with the article by Howard-Jones and Hölscher, he finds evidence for the beneficial effects of the Washington Consensus neo- liberal policies in the early part of the period, while the later interventionist policies appear to have had better outcomes than the populist policies. His analysis suggests that both initial conditions and subsequent macroeconomic policies matter for the outcomes of economic transition.
In the fourth article, Mile Bošnjak, Vlatka Bilas and Gordana Kordić investigate the determinants of foreign exchange reserves in North Macedonia and Serbia. They argue that this macroeconomic variable is an important instrument in providing a cushion to exogenous economic shocks. Using a quantile regression approach, they explore the determinants of foreign exchange reserves, which include the real effective exchange rate, monetary aggregates, and the level of economic output.
In the fifth and final article, Amela Kurta and Nermin Oruč investigate the effects of increasing the minimum wage on poverty and inequality in Bosnia and Herzegovina. They use data from the Household Budget Survey for 2015, to assess the effects of changes in the minimum wage using a microsimulation model. The analysis suggests that increasing the minimum wage can significantly reduce poverty, but may have only a limited effect on the level of income inequality. The authors argue that increasing the minimum wage on its own may have unexpected effects if other policies are not taken into account and appropriately adjusted.
William Bartlett Editor-in-Chief
Economic Annals
... Archer ve Halliday (1998) ve Heller (1996), ülkeler uluslararası ödemelerdeki beklenmedik ve geçici dalgalanmaları karşılamak için, rezerv tutmanın önemine vurgu yapmışlardır. Özellikle döviz kurunun istikrarının sağlanması noktasında, yabancı rezervler önem teşkil etmektedir (Gosselin ve Parent, 2005, s.6). ...
Altın rezervleri, riskleri azaltma ve ekonomik gücü simgelemesi noktasında önemli bir tampon görevindedir. Politik ve ekonomik çalkantı dönemlerinde, yatırımcılar açısından portföy riskinin azaltılması ve servetin koruması noktasında, altın rezervleri etkili bir araç haline gelmektedir. Bugün dünyada, altın hala çoğu merkez bankasının döviz rezervinin bir parçası olmakla birlikte, ülkelerin ekonomik gücünü gösteren simge niteliğindedir. Döviz kuru, yabancı rezervleri etkileyen önemli değişkenlerden biridir. Döviz kurunun değerlenmesi, yerli para biriminin değer kaybetmesi anlamına gelmektedir. Bu durum, Merkez Bankası rezerv talebinin artmasına neden olmaktadır. Bu çalışmada, Türkiye’deki altın rezervi ve döviz kuru ilişkisi ele alınmıştır. 2008:01-2019:12 aylık verilerin ele alındığı çalışmanın, literatürde bu konuda ciddi boşluk olması ve güncel teknikleri kullanarak iktisadi ilişkiyi açıklaması açısından, literatüre önemli katkı sağlayacağı düşünülmektedir. Ayrıca çalışmada, birim kök ve eşbütünleşme ilişkisi incelemelerinde, güncel bir yöntem olan Fourier yaklaşımları kullanılmıştır. Fourier ADF ve Fourier KSS testleriyle birim kök incelemesi yapılmıştır. Modelde kullanılan değişkenlerin seviye itibariyle değil de, fark itibariyle durağan olduğu sonucuna ulaşılmıştır. Serilerin fark itibariyle durağan olduğu anlaşıldıktan sonra, Fourier eşbütünleşme testiyle de eşbütünleşme ilişkisinin varlığı sınanmıştır. Yapılan analizler sonucunda, uluslararası rezervler ile döviz kuru arasında, eşbütünleşme ilişkisinin varlığı olduğu ispatlanmıştır. Yani döviz kurunda meydana gelen değişmelerin, uluslararası rezervleri uzun dönemde etkilediği sonucuna ulaşılmıştır. Çalışmada birim kök ve eşbütünleşme ilişkisinin varlığı sınandıktan sonra, son aşamada dols tahmin yöntemiyle, model tahminine yer verilmiştir. Model tahmini sonucunda, kur ve rezerv arasında doğru yönlü ilişki olduğu tespit edilmiştir. Buna göre teorik olarak, modelde anlamlı sonuçlara ulaşılmıştır. Sonuç olarak yapılan analiz neticesinde, döviz kurlarında meydana gelen artışın, altın rezervlerini arttırdığı sonucuna ulaşılmıştır.Anahtar Kelimeler: Altın Rezervi, Döviz Kuru, Fourier ADF, Fourier KSS, Fourier Eşbütünleşme, Türkiye
... Models have been developed and used to measure the nexus between exchange rate and foreign reserves. The Frenkel and Jovanovic (1981) "buffer stock model" (see Aizenman & Marion, 2004;Heller, 1966;IMF, 2003;Ramachandran, 2005) upon which this work on is anchored are more frequently used. Tariq et al (2014) examined the relationship between foreign exchange reserves and the real exchange rate for Pakistan using the mercantilist approach during 1973-2008. ...
... According to Heller (1966) this precautionary buffer stock, however, entails an opportunity cost. Various measures of the opportunity cost of reserve holdings such as the government bond yield, various short-term interest rates, per capita income, net foreign indebtedness, and others, have not been consistently empirically validated. ...
Political risk or insecurity have been perceived as major deterrents to the trade flow all around the globe. Using a global dataset of countries, drawn from both OECD and Non-OECD lists, this paper examines the role of twelve different types of political risks or insecurities which act as a deterrent to trade flow across the border in a three dimensional gravity framework. Using four different kinds of country groupings: all countries, both OECD, OECD with Non-OECD, and both Non-OECD in a Panel OLS, Panel EGLS, and TSLS set-up, we have found that the political risk or insecurity significantly lowers trade flow. The effect of political risk on the bilateral trade flow ranges from somewhere between 2% to 24% of the overall flow, depending on the type of political risk and the type of model that we are estimating. The magnitude of the effect of the political risk coefficients may be considered to be a substantial deterrent to trade. The result, however, still holds even though we control for standard Gravity variables such as distance, border, common language, common currency, colonial relationship, FTA membership, GATT arrangement, land-locked dummy, island dummy, and others. Political risk or insecurity which includes Government Instability, Socio-Economic Condition, Investment Profile, Internal Conflict, External Conflict, Corruption, Military in Politics, Religious tension, Law and Order, Ethnic Tension, Democratic Accountability, Bureaucracy Quality, and an Overall Political Index which is composed of all the twelve indices. All the thirteen indices have been found to have tremendous but differing degrees of impact on trade flow; with the impact of Bureaucracy Quality being the highest of them all. Covering 139 domestic countries with their applicable partner countries from 1984 to 2015 (Unbalanced Panel; Observations: 2, 24,487), this study is one of the most comprehensive ones in terms of coverage. The paper suggests that policymakers and politicians should resolve their disputes through constructive dialogue across the border and improve upon the bureaucracy quality for a smooth flow of goods and services border wide.
Mohsen Bahmani-Oskooee, Sahar Bahmani and Tatchawan Kanitpong (Eds)
... However, not many discuss the inflationary influence of foreign reserves-the price stability impact. The foray into studying reserves accumulation and its impact on inflation commenced with Heller (1966Heller ( , 1976, who looked into the global inflationary effect from worldwide reserves accumulation and estimated the optimum level of international reserves through comparing marginal benefits (Kashif et al., 2016). The QTM approach showed that the money supply's growth would cause the aggregate price levels to increase and contributed to the analysis of the nexus between international reserves and worldwide inflation (Heller, 1976;Laffer & Meiselman, (1975). ...
The conventional mandates of the central banks on meeting stability objectives and maintaining a growth-maximizing inflation rate have come under some criticism since the global financial crises. Maintaining adequate foreign reserves is seen as a viable solution to foreign exchange liquidity needs during crisis periods. Since the end of 2011, many Asian economies, including China and Japan, led from the forefront in central bank-led reserves build-up. However, reserves build-up remains challenging and sensitive for small open economies. Such policies help create ‘risk-neutral’ buffers for monetary and fiscal authorities to absorb transitory current account shocks and foreign exchange stress to smoothen the balance of payments. This study is motivated by the importance of identifying the inflation–foreign reserves nexus that may affect inflation in a manner counterproductive to the central bank mandate of maintaining price stability. It probes the debate of the sustainability of reserves build-up in the long and the short term. The outcome of the study poses several vital questions for fiscal and monetary policymakers concerning their respective mandates. The reserves–inflation nexus and its magnitude is determined using monthly data spanning two decades, through engaging an autoregressive distributed lag (ARDL) model and relevant bounds-testing techniques proposed by Pesaran et al. The vector autoregression (VAR), error correction and Johansen cointegration methods supplement the robustness checks. Exchange rate is introduced to enrich the discussion on the reserves–inflation nexus and shows a cointegration relationship in the long run. The study provides an insight into the influence of exchange rate on reserves and inflation. The variance decomposition shows the presence of a lukewarm response from foreign reserves and exchange rate on inflation. Policymakers concerned with inflationary expectations in the medium-to-long term need to consider these signals, as reserves build-up is one of the important policy-driven objectives for a number of economies.
... Dooley et al. (2003) argue that the strategy of developing economies has been export-led growth supported by undervalued exchange rates, capital controls and official capital outflows in the form of accumulation of IR. In Heller (1966) and Aizenman and Lee (2007) we can also find the same argument but those authors conclude that the main reason for the observable excess in IR accumulation is the precautionary motive. This motivation defends that the country can face sudden stops of capital flows triggered by international crises by accumulating large amounts of foreign reserves. ...
In this article we propose a methodology for the calculation of an international reserves variation threshold that defines the lending decisions of international creditors to developing countries. If the change in net international reserves of the borrowing variation is above that of the threshold, the creditors are willing to lend more. Otherwise, if that change is below the threshold, there will be capital flight. Such a threshold depends on the stocks of debt and international reserves, as well as on the perception of the default risk of the country to honour its debts. Using that threshold, we perform a counterfactual exercise to calculate the time series of international reserve levels that minimize the total cost of reserves holding, namely, the cost of possible illiquidity of the country plus the opportunity cost of holding international reserves. We illustrate the methodology by applying it to five Latin American countries: Argentina, Brazil, Chile, Mexico and Peru.
... The literature on exchange reserves is wide, starting with discussion of the optimality of and motivation for reserve accumulation. The growth trend in exchange reserves observed during the past decades raises numerous questions regarding its optimality and effect on the national economy, including the motivation behind reserve accumulation and reserve management (Heller, 1966;Kenen & Yudin, 1965;Kelly, 1970;Frenkel & Jovanovic, 1981;Dooley et al., 2003;Aizenman & Lee, 2007; for a detailed discussion see Bošnjak et. al. (2019)). ...
This paper employs a quantile regression approach to explore the determinants
and properties of international foreign exchange reserves in Serbia and
North Macedonia, at various foreign exchange levels. The observed period
covers quarterly data for 2005q1-2019q1. The results reveal
quantile-dependent determinants of foreign exchange reserves and enable
comparison between the two countries, showing co-movements between monetary
policy and economic fluctuations. Following the estimates obtained in this
research, the paper compares the role of foreign exchange reserves in Serbia
and North Macedonia.
... al. (2004) argued that reserve accumulation agenda in Asian central banks was to prevent their currencies from appreciating against the U.S. dollar in order to promote their export-led growth strategy.In principle, countries hold reserves in order to meet unexpected and temporary fluctuations in international payments. In this context, the optimal size of reserves depends on the balance between the macroeconomic adjustment costs that result if reserves are exhausted and the opportunity cost of holding reserves (Heller, 1996). ...
This study analysed the policy implications of external reserve on economic growth in Nigeria using time series data from 1980 to 2014. The study utilized Multiple Linear Regression analysis, Analysis of Variance (ANOVA), Augmented Dickey Fuller (ADF) Test, Johansen Cointegration Methods. The results of the Augmented Dickey Fuller test, showed that the data became stationary at the first difference thus, integrated of order one while the Johansen Cointegration method was used to test for the existence of long run relationship among the variables and the results showed that there is a presence of long run relationship between external reserve and economic growth. The results of the Multiple Linear Regression analysis showed that the estimated coefficient of the predictor variable, external reserve (EXTSV) was 3.42. By implication, a unit increase in External reserve resulted to an increase in economic growth by US$3.42billion in Nigeria. The policy implication of this is that measures that will enhance the stability in the amount of foreign reserve should be encouraged. Additionally, policies should be geared toward a permanent (long-run) increase in reserves rather than temporarily exchange reserve. It was recommended that the government should always be prepared to have a hedge against unforeseen periods of macroeconomic instability or external shocks by making policies that focus on more accumulation of the external reserves. One of the ways by which this can be done is to increase exports and reduce imports.
Keywords: Policy, external- reserve, growth and long- run.
... The estimation process and results obtained are presented in the fourth section followed by the conclusion in the fifth section. Heller (1966) evaluated the optimum stock of international reserves and followed rational optimizing decision to equate marginal costs and benefits of keeping international reserves. Actual reserves were compared with the results obtained for every economy in the sample to assess international reserves adequacy. ...
World international reserves holdings have accelerated sharply in recent times. Countries particularly developing ones are competitive enough to hoard these reserves and top 10 major holders are mostly from Asia. Interestingly India comes only ninth among them. Developing countries, particularly India, are in line to hoard foreign reserves and there are certain factors that affect international reserves holdings. This study analysed the impact of few macroeconomic factors on these reserves. Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests were employed to check the stationarity of the variables on the time series data that were of annual frequency. It was found that all variables were co-integrated signalling long-run relationship. Error correction mechanism (ECM) was implemented to get short-run dynamics for which a negative relation was established for trade openness (TRDOP) which contradicts previous studies. The negative relationship of TRDOP with international reserves in India could be due to the outcome of sustained trade deficits of Indian balance of payments. The economic growth variable exhibits a positive relationship which is consistent with previous studies. All variables were found significant at a 5 per cent level. The ECM suggested the same results as its long-run counterpart.
... The first group of researchers, such as Jeanne and Ranciere (2011), Victor and Vladimir (2006), Garcia and Soto, 2004, Bird and Rajan, 2003, Calvo and Reinhart (2002, and Rodrik and Velasco (1999) has matched the reserve adequacy levels with developments in economic variables such as the import levels, broad money (M2), and short-term debts levels. The second group which includes Tule et al. (2015), Ben-Bassat et al. (1992), Heller (1966), Hamada and Ueda (1977), and Frenkel and Jovanovic (1981), are concerned with the cost-and-benefit associated with the holding of these reserves in the central banks as pre-requisites for the determination of the reserve adequacy levels. Also, whiles a lot of researchers and IMF policy paper discussions have encouraged country-specific circumstances in determining the level of reserves; other researchers have come out with global or general standards or metrics. ...
Discussions on Reserve Adequacy Assessment on a country-specific basis have been scant in the literature despite its significance. This situation has led to calls for the discussions on reserves holdings and adequacy levels to be more rooted in the country's Article IV consultation report.
In this study, we examined if reserves build-up by the central bank of Ghana meets the specific metrics of theoretical reserve models such as the reserves to M2 growth metrics and the Greenspan-Guidotti rule metrics. We also determined whether the reserves build-ups correctly adjust to economic and policy variables and whether these adjustments are consistent with the predictions of empirical theories and findings. We again examined whether exchange rate depreciations contribute to positive reserves accumulation by the central bank of Ghana.
Using Vector Error Correction Model, this research has rejected the short-run matching of the reserves stock of the central bank of Ghana to the theoretical standard metrics of 20% of broad money and 100% of short-term debts. These results have implications on the future credit ratings of the country and could also make future borrowing more expensive. Also, the impulse response functions showed a mixed result of the adjustments in reserves build-up to the predictions of empirical theories and findings. Additionally, the analysis proved the long-run test of restriction of exchange rate depreciation on positive reserves build-up of the central bank. However, the short-run adjustments of the exchange rates on reserves rejected this relationship. Furthermore, the decomposition analyses showed that short-run variations in reserves are explained by external forces, whereas the long-run variations are explained through the financial sector and partly by external forces. Therefore, an econometric specification of reserves beyond three months must specify in the model both the financial sector and external sector variables.
... Ülkelerin sahip olmaları gereken optimal rezerv düzeyleri konusunda farklı görüşler bulunmakadır. Uluslarası rezervlerin ekonomideki rolü ile ilgili öncü çalışma olarak kabul edilen Heller (1966)'da ihtiyati güdüyle tutulan rezerv mikarının ülkeye özgü olarak hangi düzeyde olması gerektiği konusunda üç kriteri göz önünde bulundurmaktadır. Birincisi, dış dengesizliğe uyum sağlamanın maliyeti (ithalat eğilimi olarak ölçülür). ...
1990’larda yaşanan finansal krizlerin sonrasında ülkeler, uluslararası rezervleri finansal küreselleşmeden kaynaklanan oynaklığa karşı bir garanti mekanizması olarak görmeye başlamış ve bu nedenle uluslararası rezervlerin gayri safi yurt içi hasıladaki payını arttırmaya yönelmişlerdir. Bu çalışmada, yaşanan küresel krizlerin ardından edinilen tecrübeler doğrultusunda ulusal ekonomiler için makro ekonomik istikrarın önemli bir koşulu olan finansal istikrarın sağlanmasında rezervlerin etkili bir araç olup olmadığı Türkiye örneği için araştırılmaktadır. Bu kapsamda, Türkiye ekonomisinde 2005:Q4-2018:Q3 dönemi için finansal istikrar endeksi ile merkez bankası resmi rezervleri arasındaki ilişki ele alınmaktadır. Ampirik analiz periyodunun tamamında rezervlerin finansal istikrar üzerinde negatif etkisinin olduğu, her bir frekans alanında ise rezervlerin finansal istikrar üzerinde 2009:Q3-2012:Q2 arası pozitif, 2012:Q3-2016:Q4 arası negatif ve 2017:Q1-2018:Q3 arası tekrar pozitif etki yarattığı sonucuna ulaşılmıştır.
... Even though economic growth is not a sufficient condition for poverty alleviation/elimination it is indeed a necessary condition for the reduction and sustained economic growth in an atmosphere of equitable distribution of income and wealth paves the way for the reduction or elimination of absolute poverty and underdevelopment. Heller (1966) concludes that emerging market economies hold reserves as a buffer stock to smooth unexpected and temporary imbalances in international payments. This view is supported by Eichengreen (2006) who notes that demand for reserves is partially driven by demand for insurance against financial shocks. ...
The adoption of tight monetary policy by the Central Bank of Nigeria since 2009 has been
to address inflationary threats, which became elevated due to liquidity surfeit that exerted
tremendous pressure on foreign exchange and external reserves. The liquidity condition
reflected the impact of huge fiscal injections and quantitative easing implemented to
address the challenges of the global financial crisis. This paper adopts an aggregated
modified theoretical model for the Nigerian economy, in which aggregate credit supply is
specified as a function of monetary policy innovations. Short term interest rates are used
as proxy for MPR to capture the combined effects of monetary policy innovations and CBN
interventions in the money market. Using monthly time series data from October, 2010 to
December, 2013, the study identifies agriculture, manufacturing, real estate and
construction as well as transportation and communication sub-sectors for analysis. The
impact on the sectors, through the volume of credit, was observed to be marginal. Also,
based on ordinary least squares (OLS) estimation techniques in the short run, the results
indicates that measures such as cash reserve ratio and various proxies for monetary policy
rate in the review period, did not produce the expected outcome on the selected sectors
of the economy except on total credit to the private sector. Accordingly, in addition to
ensuring price and monetary stability, complementary policies that will expand credit to
the selected sectors are required to stimulate growth in the real sector of the economy.
... Even though economic growth is not a sufficient condition for poverty alleviation/elimination it is indeed a necessary condition for the reduction and sustained economic growth in an atmosphere of equitable distribution of income and wealth paves the way for the reduction or elimination of absolute poverty and underdevelopment. Heller (1966) concludes that emerging market economies hold reserves as a buffer stock to smooth unexpected and temporary imbalances in international payments. This view is supported by Eichengreen (2006) who notes that demand for reserves is partially driven by demand for insurance against financial shocks. ...
The paper examines the nexus between Nigeria’s foreign reserves and economic growth. Analysis of the data from 2000:Q1 - 2013:Q2, using the modified Wald statistic of Toda and Yamamoto (1995) confirms a unidirectional causality running from external reserves to economic growth. The Gregory and Hansen co-integration test also confirms the existence of a long run relationship between the variables, but with a structural break in 2009:Q4. The study finds that external reserves drive economic growth in Nigeria, both in the short and long term horizons. Results also show that a one per cent increase in external reserves leads to 0.15 per cent increase in economic growth. Since general macroeconomic stability has growth enhancing effects, the paper endorses the CBN routine interventions in the foreign exchange market aimed at ensuring stability of the exchange rate.
Purpose: This paper offers simulations and forecasts of the ideal currency reserve measure in light of future shocks to the Iraqi economy due to the downturn in the international price of oil and the global economic shutdown triggered by the Corona pandemic. Theoretical framework: The Iraqi foreign exchange reserves have entered a cycle of sustained and accelerated degradation in recent years and hit alarming amounts in 2020, affecting Iraq's financial stability compared to other foreign currency reserves. According to figures from the Iraqi Parliament's Financial Commission, the Iraqi fund in the Central Bank of Iraq decreased, following removing the government's second loan by the end of 2020, to $35 billion. The Fitch Ratings Agency, on the other hand, has found that Iraq's plan to slash public sector wages and pension costs will delay the reduction of currency reserves as part of the attempt to lower financial imbalances and relieve financial pressures. However, it will be difficult to enforce and risk exacerbating social disorders. According to Fitch, by the end of August (15% of projected GDP for 2020), cash funding from the Central Bank of Iraq grew to 28.5 billion Iraqi dinars from 14.1 billion Iraqi dinars at the end of May. Design/methodology/approach: The study uses an analytical approach to show the fluctuations in oil prices and their impact on the fluctuation of oil revenues and the currency-selling window that the Central Bank of Iraq applies to its foreign reserves. Findings: The systemic problem of worldwide petroleum price drops that provide longer-term estimates to estimate the decrease in petroleum prices on global oil markets explains the quick fall in Iraqi exchange reserve magnitude. Iraq's foreign reserves, mostly from oil exports, fulfill international standards. Iraq's exchange rate policy depends on the Central Bank's direct foreign currency sales. This approach reduces foreign money diversion from Iraq, preventing the central bank from maintaining exchange rate stability. Research, Practical & Social implications: The impact of foreign reserves on national financial stability is becoming more obvious as their function evolves from supplying fundamental transaction needs to fulfilling financial security criteria. Originality/value: The Iraqi dinar's value must be protected at all costs, hence the Central Bank of Iraq's foreign reserves are crucial. These reserves are affected by oil revenues, the main financier for it, and the window for selling the currency, which is the outlet for leakage from it.
This study empirically investigates the dynamics of the relationship between import demand and foreign exchange reserves for an oil-rich and high-income developing country, Oman. This study employs the Autoregressive Distributed Lag (ARDL) model to investigate the impact of real income, domestic prices, and foreign exchange reserves on aggregate and disaggregated import demand function. Results reveal that total imports are significantly affected by domestic prices only; whereas, demand for goods import is influenced by income. The level of foreign exchange reserves does not influence import demand function. These findings indicate that currency peg stabilization efforts, foreign asset leakages and varying sources of foreign currency could have weakened the link between foreign reserves and import levels. Considering domestic prices and income, competition and efficient production of local goods and services should be further encouraged, especially concerning ongoing issues like food security. Understanding import dynamics enhances robust import forecasts, international trade planning and policy formulation.
Cette étude consiste à analyser la relation entre les réserves de change et la Covid19 en Algérie. Pour réaliser ce travail, les données de la Covid19 sont collectées à partir de la plateforme Reuters et celles des réserves de changes provenant de la Banque d'Algérie. Ces données couvrent la période allant de 23-mars-2020 au 05-janvier-2021. Pour remettre en question la relation entre ces dernières, on a utilisé l'approche ARDL, appliquée aux séries chronologiques avec un ordre d'intégration mixte et aux séries chronologiques non stationnaires. Selon les résultats d'analyse, il existe une relation de cointégration, et elle est statistiquement significative. Ainsi, il existe deux Causalités bidirectionnelles: la 1ére entre les réserves de change et les cas de la Covid19 cumulés et la seconde entre les réserves de change et les nouvelles contaminations, et Une causalité unidirectionnelle entre la variable décès cumulés de la Covid19 qu'est causée par les réserves de change. Abstract: This study consists of analyzing the relation between foreign exchange reserves and Covid19 in Algeria. To carry out this work, Covid19's data is collected from the Reuters platform and foreign exchange reserve's data from the Bank of Algeria. This data covers the period from March-23-2020 to January-05-2021. To interrogate the relationship between these last, we used the ARDL approach which applies to non-stationary time series and time series with a mixed order of integration. According to the analysis results, there is a cointegrating relationship, and it is statistically significant. Thus, there are two bidirectional causalities: the 1st between foreign exchange reserves and cumulative Covid19 cases and the second between foreign exchange reserves and new contaminations, and a unidirectional causality: the variable cumulative deaths of Covid19 caused by the foreign exchange reserves.
: Çalışmada Yapay Sİnir Ağları (YSA) teknikleri ile 2013-2021 verilerinden hareket ile TCMB`nin Brüt Döviz Rezervleri tahmin edilmiştir. Çalışma kapsamında Türkiye`nin brüt döviz rezervlerinin İMF`nin optimal rezerv büyüklüğüne uyum sağlayıp sağlamadı değerlendirildikten sonra, YSA modeli kurulmuştur. Brüt Döviz Rezervlerine etki eden makro iktisadi faktörler olan değişkenlerin seçiminde literatürde Kabul görmüş ve özellikle Türkiye için ampirik olarak uygulanarak doğrulanmış değişkenler kullanılmıştır. Tek katmanlı ve 20 nöronlu model ile tahmin edilen YSA yapısı, Levenberg-Marquardt geri yayılım algoritması ile eğitilmiştir. Modelde bias sorunları çözümlenerek, 1000 interasyon denemeleri ile eğitilmiş ve RMSE,MAE,MAPE ve R2 değerlerine göre model başarısı ortaya koyulmuştur. Başarılı model belirlendikten sonra, 2021 yılının Temmuz ve 2022 yılının Haziran ayları için brüt döviz rezervi tahminleri yapılmıştır. Yapılan tahmine göre, ilerleyen 12 ayda brüt döviz rezervleri yatay-durağan bir şekilde hareket etmesi beklenmektedir.
Motivated by the observation that a country tends to have more official foreign reserves if its crude oil endowment is large (small) but its productivity is low (high), we develop and estimate a dynamic stochastic optimization model to show that precautionary incentives against oil price shocks can account for a substantial part of the effects of productivity and oil endowment on a country’s foreign reserves. We demonstrate how oil price shocks are absorbed by changes in foreign reserves which, in turn, leads to less variation in aggregate consumption. Along with productivity and oil endowment, we also consider as determinants of foreign reserves conventional variables such as trade-to-GDP ratio and capital openness. Overall, our results suggest that ignoring productivity and oil endowment may lead to large bias in the estimates of some conventional determinants of a country’s foreign reserves.
Esta obra recoge ensayos escritos por José Antonio Ocampo, Jonathan Malagón y colaboradores sobre la importancia de la “dominancia de la balanza de pagos” en economías como la colombiana. Este concepto lo define el primero de los autores como la influencia que ejerce la balanza de pagos sobre la dinámica macroeconómica de corto plazo de los países en desarrollo; es decir, la dependencia de los ciclos económicos de estos países de las perturbaciones externas, tanto positivas como negativas, que afectan la balanza de pagos. Un rasgo muy importante de esta dependencia, según Ocampo, es la tendencia de que la política macroeconómica se pueda comportar en forma procíclica. A partir de este concepto, los autores analizan distintos fenómenos colombianos, latinoamericanos e internacionales: el miedo a dejar flotar la tasa de cambio, la estabilidad financiera, el papel de los fondos de estabilización de productos básicos, los determinantes y la efectividad de la política monetaria en Colombia y los desafíos macroeconómicos que enfrenta el país con el fin del superciclo de precios de productos básicos.
Recent financial crises have heightened the demand from emerging markets' and developing countries’ central banks for international reserves that can meet their emergency foreign currency liquidity needs at times of halts in capital flow. The necessity of reserves for weathering external shocks is well documented in the literature. Likewise, macroeconomic factors to determine the level of reserves have been central to many empirical studies. Motivated by Bangladesh’s stance in regard to reserve accumulation, we aim to investigate the macroeconomic determinants of the demand for international reserves in the country using quarterly data ranging from 1994Q2 to 2016Q4. We also examine the role of disequilibrium in the national money market in reserve movements during the same period. In addition, we check for a structural break associated with the exchange rate regime change in the reserves demand function. The Johansen cointegration test of reserve demand function reveals that the current account vulnerability and exchange rate flexibility play a crucial role in Bangladesh’s long-term reserve demand policies. However, reserves appear to be insensitive to economic size and opportunity cost. A single equation error correction estimate suggests that the monetary disequilibrium does not play a significant role in the short-term reserve movements. More importantly, a dynamic ordinary least-squares estimate suggests that switching to the flexible exchange rate regime in 2003 contributes to a structural change in the long-term reserve demand policies of Bangladesh. Since the empirical results suggest that Bangladesh’s reserve holding behavior is primarily driven by the precautionary motive, we propose that the country should continue to focus on increasing its reserve stock in relation to the current account vulnerability.
International reserves directly used for financing of balance of payments deficit and adjustment of the foreign exchange market disequilibrium. On the other hand, specific economic conditions of OPEC countries such as economic dependence on oil revenues, the lack of suitable flexibility in exchange rate regime and also oil shocks during recent decades, lead to effect of oil price volatility on international reserves in these countries. Hence, due to the important role of international reserves in economies and also the economic situation of OPEC countries, in this study by using mercantilist approach, the determinants of international reserves in OPEC countries have been evaluated with emphasizing on oil price uncertainty by using panel data method during 1980-2015. According to the results, moving average of real export revenue, the difference between domestic and international real interest rate, gross domestic product per capita, exchange rate regime index, trade openness, net barter terms of trade index, short-term external debt, capital account liberalization index, oil price uncertainty, positive and negative shocks of oil price have been known as determinants of international reserves.
This study investigated the connection between external reserve and economic growth in
Nigeria. It covered the period of 1986 to 2018. Data were soured from Central Bank of
Nigerian Statistical Bulletin (2018). The techniques adopted for analysis were Augmented
Dickey-Fuller Unit Root, Philip Perron Unit Root, Autoregressive Distributed Lag (ARDL)
and Granger Causality techniques. Base on Bound Co-integration test result it was found
that external reserve, exchange rate, trade openness and inflation rate had long run
relationship with real gross domestic product. The ARDL result indicated that external
reserve and exchange rate positively influenced economic growth while trade openness and
inflation rate were found to exert negative effect on economic growth. The causality result
indicated that external reserve had bidirectional causality with economic growth in Nigeria.
The implication of these findings is that the policy of holding and managing reserves will
enhance liquidity position of a nation, serve as cushion during economic crisis, prevent
exchange instability and provide long term resources for investment in infrastructural
facilities which are growth inducing in the long run.
This paper examines the relationship between economic growth and reserve accumulation in Nigeria using quarterly data from 2011:Q3 to 2019:Q1 in a nonlinear autoregressive distributed lag (NARDL) framework which allows for the short-and long-run nonlinearities to be investigated through positive and negative partial sum decompositions of the explanatory variable. The bounds-testing analysis confirms the existence of an asymmetric (cointegrating) long-run relationship based on the NARDL error correction model (ECM). The OLS estimation provides a reliable inference notwithstanding the variables' orders of integration. The estimated long-run coefficient of a negative change in reserve accumulation was statistically significant at 1%. The asymmetric cointegration relationship shows that 1% negative shock to the reserve results in about 0.2% increase in economic growth in Nigeria. The asymmetric dynamic multiplier captures the patterns of adjustment from the initial equilibrium to a new equilibrium following economic trepidation. This suggests that the imposition of long-run symmetry where the underlying relationship is nonlinear will muddle efforts to test for the existence of a stable long-run relationship between the two variables. In all, the nonlinear analysis provides more reliable parameter estimates that suggests that the relationship anchored on the interaction between positive productivity shocks and attrition in reserve accumulation.
Most countries in the world, especially developing countries, pool their foreign exchange reserves to ensure that their balance of payments imbalances can be easily addressed, defend their national currency exchange rate, and meet their obligations to their creditors. It also represents a barrier against tragic economic and financial conditions. A key factor to win the confidence of creditors provides a safer environment to attract investors, both domestic and foreign. There is no difference in views on the conditions of building reserves at safe levels and their optimal size and avoiding excessive retention through reduced exposure opportunities and increased cost of opportunity to retain them. The research was to show the reserve cycle in Iraq during the period (2004-2017) a number of indicators at the optimum level, especially the Hener equation (in addition to other indicators such as import coverage, broad money supply, internal and external indebtedness, Iraq has proved to maintain a higher-level optimum. Therefore, it has been predicted that if IFAD invests in the Sovereign Wealth Fund and in the form of an investment company with key elements in its creation, the Fund will contribute to the diversification of Iraq's income sources as well as participation in development. Solutions to the growing problems of the Iraqi economy. Introduction:
This paper examines the optimal level of international reserves for Nigeria by minimizing the central bank’s cost function. The study
imposed the cumulative quarterly output loss associated with the global financial crisis and Nigerian Banking sector crisis between
2008Q1 and 2009Q4 (i.e. 52.80 per cent) and 2009Q1 – 2010Q4 (i.e. 32.22 per cent) as the maximum and minimum output losses for
the entire study period. The study found that while actual reserves had been above the optimal reserves level between 2008Q1 –
2010Q4, the average core reserves available to the economy was however, insufficient to absorb the adverse economic impact of
financial crises if they occur in future.
Motivated by the significant increases in international reserves during the 2000s, this paper analyzes the reasons why emerging and developing countries choose to accumulate them. In addition to a traditional measure of mercantilism, we add the terms of trade, and the speculation-deterrent motive. The results show that the mercantilist motive was a significant factor behind the massive accumulation of reserves before the global financial crisis, and it was almost as important as the precautionary motive. It is shown that commodity-exporting countries increased reserves for a fundamentally mercantilist motive. Finally, the speculation-deterrent motive was also an important factor during the 2000s.
شكّل الدين العام تحدياً كبيراً امام الدول النامية والمتقدمة على حدٍ سواء ، وهو ما جعل الاهتمام يدور حول الحدود المثلى (عتبة الدين) له ، والعوامل المحددة له. تبحث الدراسة في بيان اثر الدين المصرفي العام على الاحتياطي الاجنبي وعمل الاحتياطي الاجنبي كقيد على عملية الدين المصرفي (جزء من الدين الداخلي) للمدة (2017-2004) ، اضافة الى ايجاد نوع وطبيعة العلاقة بينهم وفق فرضيات الدراسة ، التي تؤكد على وجود علاقة عكسية بين الدين المصرفي العام والاحتياطي الاجنبي ، اذ استندت الدراسة في ذلك الى بيانات القطاع المصرفي العراقي ، التي اظهرت تمتع العراق باحتياطي اجنبي يتناسب مع المعايير الدولية، بل انه يحافظ على احتياطي مبالغ فيه. وان البنك المركزي العراقي لا يمكنه التحكم بالطلب او عرض الاحتياطي ، بل انه يدير هذا الاحتياطي. تبين ايضاً اعتماد العراق بشكلٍ كبير على الايرادات النفطية في استدامة دينه ، اي ان زيادة المورد النفطي يعمل على استدامة الدين المصرفي العام. ساهمت المؤسسات غير المصرفية بعملية الدين الداخلي (دائرة رعاية القاصرين والهيئة الوطنية للمتقاعدين) ، وساهم البنك المركزي العراقي بعملية الدين المصرفي ، من خلال خصم الحوالات في السوق الثانوي فقط، وذلك مع الانخفاض الحاد لاسعار النفط خلال الاعوام (2017,2016,2015) وبواقع (,32.6 51.5 48.6,)% على التوالي وهو ما اعطى متنفساً لتمويل العجز او الانفاق العسكري، بينما كانت السندات تشكل نسبة منخفضة. ان مساهمة البنك المركزي العراقي في عملية الدين المصرفي، ادت الى استنزاف الاحتياطي الاجنبي ، حيث حافظت نافذة بيع العملة الاجنبية على نفس الرتم تقريباً ، بينما مشتريات الدولار للمركزي من وزارة المالية انخفضت ، وهو ما يعوض من خلال الاحتياطي ، وبالتالي استنزافه .
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