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The Optimal Level Of Foreign Reserves In Financial Dollarized Economies
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Book Synopsis The Optimal Level of Foreign Reserves in Financial Dollarized Economies by : Fernando M. Gonçalves
Download or read book The Optimal Level of Foreign Reserves in Financial Dollarized Economies written by Fernando M. Gonçalves and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends the framework derived by Jeanne and Rancière (2006) by explicitly incorporating the dollarization of bank deposits into the analysis of the optimal level of foreign reserves for prudential purposes. In the extended model, a sudden stop in capital flows occurs in tandem with a run on dollar deposits. Reserves can smooth consumption in a crisis but are costly to carry. The resulting expression for the optimal level of reserves is calibrated for Uruguay, a country with high dollarization of bank deposits. The baseline calibration indicates that the gap between actual and optimal reserves has declined sharply since the 2002 crisis due to a substantial reduction in vulnerabilities. While the results suggest that reserves are now near optimal levels, further accumulation may be desirable going forward, partly because banks' currently high liquidity levels are likely to decline as the credit recovery matures.
Book Synopsis The Optimal Level of Foreign Reserves in Financially Dollarized Economies: The Case of Uruguay by : Fernando M. Gonçalves
Download or read book The Optimal Level of Foreign Reserves in Financially Dollarized Economies: The Case of Uruguay written by Fernando M. Gonçalves and published by INTERNATIONAL MONETARY FUND. This book was released on 2007-11-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends the framework derived by Jeanne and Rancière (2006) by explicitly incorporating the dollarization of bank deposits into the analysis of the optimal level of foreign reserves for prudential purposes. In the extended model, a sudden stop in capital flows occurs in tandem with a run on dollar deposits. Reserves can smooth consumption in a crisis but are costly to carry. The resulting expression for the optimal level of reserves is calibrated for Uruguay, a country with high dollarization of bank deposits. The baseline calibration indicates that the gap between actual and optimal reserves has declined sharply since the 2002 crisis due to a substantial reduction in vulnerabilities. While the results suggest that reserves are now near optimal levels, further accumulation may be desirable going forward, partly because banks' currently high liquidity levels are likely to decline as the credit recovery matures.
Book Synopsis The Optimal Level of Foreign Reserves in Financially Dollarized Economies by : Fernando M. Goncalves
Download or read book The Optimal Level of Foreign Reserves in Financially Dollarized Economies written by Fernando M. Goncalves and published by . This book was released on 2007 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Dollarization by : A. Armas
Download or read book Financial Dollarization written by A. Armas and published by Springer. This book was released on 2006-07-14 with total page 349 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume provides a rigorous and balanced perspective on the causes and implications of dollarization, and the basic policies and options to deal with it: the adaptation of the monetary and prudential frameworks, the development of local-currency substitutes, and the scope for limiting dollarization through administrative restrictions.
Book Synopsis The Optimal Level of International Reserves for Emerging Market Countries by : Romain Ranciere
Download or read book The Optimal Level of International Reserves for Emerging Market Countries written by Romain Ranciere and published by International Monetary Fund. This book was released on 2006-10 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a model of the optimal level of international reserves for a small open economy that is vulnerable to sudden stops in capital flows. Reserves allow the country to smooth domestic absorption in response to sudden stops, but yield a lower return than the interest rate on the country's long-term debt. We derive a formula for the optimal level of reserves, and show that plausible calibrations can explain reserves of the order of magnitude observed in many emerging market countries. However, the recent buildup of reserves in Asia seems in excess of what would be implied by an insurance motive against sudden stops.
Book Synopsis Escaping the Financial Dollarization Trap: The Role of Foreign Exchange Intervention by : Paul Castillo
Download or read book Escaping the Financial Dollarization Trap: The Role of Foreign Exchange Intervention written by Paul Castillo and published by International Monetary Fund. This book was released on 2024-06-21 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial dollarization is considered a source of macroeconomic instability in many emerging economies. Dollarization constrains the ability of central banks to stimulate output during economic downturns. In contrast to the conventional monetary transmission mechanism, a monetary policy loosening in a dollarized economy leads to a currency depreciation, adverse balance sheet effects, and a contraction in investment and output growth. In this paper we evaluate the role of foreign exchange reserves in facilitating macroeconomic stabilization in a financially dollarized economy. We first show empirically that foreign exchange intervention in response to capital outflows can largely reduce the volatility of output and the real exchange rate in dollarized economies. We then develop a small open economy model with foreign currency debt and balance sheets effects. Our quantitative model shows that an active foreign exchange intervention policy is sufficient for offsetting the output volatility associated with financial dollarization. These results can explain the prevalence of low macroeconomic volatility in some dollarized economies (Christiano et al., 2021) and they highlight the role of foreign exchange reserves in reducing the welfare costs of dollarization.
Author :International Monetary Fund. Strategy, Policy, & Review Department Publisher :International Monetary Fund ISBN 13 :1498345646 Total Pages :42 pages Book Rating :4.4/5 (983 download)
Book Synopsis Guidance Note on the Assessment of Reserve Adequacy and Related Considerations by : International Monetary Fund. Strategy, Policy, & Review Department
Download or read book Guidance Note on the Assessment of Reserve Adequacy and Related Considerations written by International Monetary Fund. Strategy, Policy, & Review Department and published by International Monetary Fund. This book was released on 2016-03-06 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: operational guidance to staff on reserve adequacy discussions in the IMF’s bilateral and multilateral surveillance. It is based on the views presented in the policy paper Assessing Reserve Adequacy—Specific Proposals and the related Board discussion. The note addresses key issues related to Staff’s advice on the assessment of the adequacy of reserves and related items, including answering the following questions: What is the expected coverage of reserve issues at different stages of the bilateral surveillance process (Policy Note, mission, and Staff Report)? Which reserve adequacy tools best fit different economies based on their financial maturity, economic flexibility, and market access? What do possible reserve needs in mature markets relate to, and how can their adequacy be assessed? How can reserve adequacy discussions for emerging and deepening financial markets be tailored and applied to better evaluate reserve levels in: (i) commodity-intensive economies; (ii) countries with capital flow management measures (CFMs); and (iii) partially and fully dollarized economies? What reserve adequacy considerations hold for countries with limited access to capital markets? How can metrics for these economies be tailored to evaluate their reserve needs? How should potential drains on reserves be covered? What are the various measures of the cost of reserves for countries with and without market access?
Book Synopsis Financial Stability in Dollarized Economies by : Ms.Anne Marie Gulde
Download or read book Financial Stability in Dollarized Economies written by Ms.Anne Marie Gulde and published by International Monetary Fund. This book was released on 2004-06-15 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The process of dollarization can take multiple forms, including when a country adopts the US dollar either as its predominant currency, or establishes a bicurrency system with the local currency. This publication examines how to establish an adequate supervisory and crisis management framework in dollarized economies, particularly when central banks and regulators may be constrained in the use of standard monetary and financial policy tools. It is based on a paper produced by the IMF Executive Board, as part of the policy development work conducted by the IMFs Monetary and Financial Systems Department.
Book Synopsis Dollarization by : Eduardo Levy Yeyati
Download or read book Dollarization written by Eduardo Levy Yeyati and published by MIT Press. This book was released on 2003 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical and empirical analysis of de jure dollarization. With the persistent instability of international financial markets, emerging economies are exploring new ways to reduce exposure to capital flow volatility. Some analysts argue that financially open economies are best served by more flexible regimes, while others argue in favor of extreme exchange rate regimes that have a strong commitment to a fixed parity or dispense with an independent currency. The successful launch of the euro has made more realistic the prospect of replacing a national currency with a strong foreign one. Recent examples include the adoption of the US dollar by Ecuador and El Salvador. The introduction of a foreign currency as sole legal tender, termed full (de jure) dollarization, has been the center of much political and academic debate. This book provides a comprehensive analysis of the issues from both theoretical and empirical perspectives. The topics discussed include the role of balance sheet effects, the linkage between currency risk and country risk, the impact of dollarization on trade, financial integration and credibility, the implications of dollarization for the lender of last resort, and the institutional and political economy aspects of dollarization.
Book Synopsis International Reserves and Foreign Currency Liquidity by : International Monetary Fund. Statistics Dept.
Download or read book International Reserves and Foreign Currency Liquidity written by International Monetary Fund. Statistics Dept. and published by International Monetary Fund. This book was released on 2015-01-07 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: This update of the guidelines published in 2001 sets forth the underlying framework for the Reserves Data Template and provides operational advice for its use. The updated version also includes three new appendices aimed at assisting member countries in reporting the required data.
Book Synopsis Assessing Reserve Adequacy - Specific Proposals by : International Monetary Fund
Download or read book Assessing Reserve Adequacy - Specific Proposals written by International Monetary Fund and published by International Monetary Fund. This book was released on 2014-12-19 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Reserves have a central place in the policy tool kit of most economies, providing insurance against shocks. In conjunction with sound policies, they can help reduce the likelihood of balance of payment crises and preserve economic and financial stability. Reserves, however, can result from both precautionary and non-precautionary policy objectives and institutional settings. While they can bring several important benefits, reserve holdings can sometimes be costly. This paper brings together recent Fund work on reserve adequacy issues aiming to strengthen their discussion in bilateral surveillance. Despite the ongoing debate on reserve issues, there is little consensus about how to assess reserve holdings in different economies, even though this is an important aspect of a member’s external stability assessment. The work stream of which this paper is part aims to fill this gap by outlining a framework for discussing reserve adequacy issues in different economies. In this regard, the paper also forms part of the Fund’s response to the 2012 IEO evaluation of the Fund’s advice related to international reserves, which recommended, inter alia, that assessments of international reserves in bilateral surveillance reports should be more detailed and reflect country circumstances. To this end, the paper proposes that, where warranted, individual country Article IV reports include a fuller discussion of the authorities’ stated objectives (precautionary and non-precautionary) for holding reserves, an assessment of the reserve needs for precautionary purposes, and a discussion of the cost of reserves. The aim would be to ensure evenhandedness so that countries with similar circumstances are assessed in similar ways, while allowing the depth and emphasis of this discussion to vary depending on country conditions and needs
Book Synopsis Optimal Foreign Reserves and Central Bank Policy Under Financial Stress by : Luis Felipe Céspedes
Download or read book Optimal Foreign Reserves and Central Bank Policy Under Financial Stress written by Luis Felipe Céspedes and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the interaction between optimal foreign reserves accumulation and central bank international liquidity provision in a small open economy under financial stress. Firms and households finance investment and consumption by borrowing from domestic financial intermediaries (banks), which in turn borrow from abroad. Binding financial constraints can cause the domestic rate of interest to rise above the world rate and the real exchange rate to depreciate, leading to inefficiently low investment and consumption. A role then emerges for a central bank that accumulates reserves in order to provide liquidity if financial frictions bind. The optimal level of international reserves in this context depends, among other variables, on the term premium, the depth of financial markets, ex ante financial uncertainty and the precise way the central bank intervenes. The model is consistent with both the increase in international reserves observed during the period 2004-2008 and with policy intervention after the Lehman bankruptcy.
Book Synopsis Macroeconomic Implications of Financial Dollarization by : Marco Piñon
Download or read book Macroeconomic Implications of Financial Dollarization written by Marco Piñon and published by International Monetary Fund. This book was released on 2008-07-25 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: Uruguay has experienced a remarkable recovery since the 2002 crisis, with the help of sound policies and favorable external conditions. This book covers the efforts to move toward a fully fledged inflation-targeting regime, and to develop interest rates as monetary instruments. Uruguay has experienced a remarkable recovery since the 2002 crisis, with the help of sound policies and favorable external conditions. Uruguay abandoned an exchange rate peg in favor of a free float, adopted a monetary regime initially based on money targets, improved financial prudential norms and supervision, and accumulated significant central bank reserves. Uruguay now faces new challenges in stabilizing its economy through postcrisis monetary and financial reforms. The analysis in this Occasional Paper bears directly on the ongoing efforts to move toward a fully fledged inflation-targeting regime, to develop interest rates as monetary instruments, to improve the preparedness of the financial system to deal with shocks, and to ensure the adequacy of current central bank reserves.
Book Synopsis The Pros and Cons of Full Dollarization by : Eduardo Borensztein
Download or read book The Pros and Cons of Full Dollarization written by Eduardo Borensztein and published by International Monetary Fund. This book was released on 2000-03 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is an old joke that says that the exam questions in economics remain the same every year-only the answers change. Certainly, the debate about the best exchange rate regime has been with us forever, but new answers keep appearing. The newest answer to the question of what exchange rate regime countries should choose is none. That is, countries should forgo using their own currency entirely and adopt as legal tender a stable foreign currency, most commonly the U.S. dollar. Then-president Carlos Menem of Argentina suggested last year that Argentina should adopt the U.S. dollar-that is, dollarize-as the ultimate solution to its long history of difficulties with monetary and exchange rate policy. More recently, Ecuador has announced its intention to adopt the dollar, in the context of a deep economic and political crisis. Prominent economists have begun to argue that essentially all developing countries should also dollarize (see Calvo and Reinhart, 1999). Not only developing countries, however, are considering dollarization. Partly prompted by the example of the adoption of the euro this year, some have suggested that Canada should adopt the U.S. dollar as well.
Book Synopsis The Level of a Central Bank's International Reserves by : Taru Lehto
Download or read book The Level of a Central Bank's International Reserves written by Taru Lehto and published by . This book was released on 1994 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tiivistelmä.
Book Synopsis Guidelines for Foreign Exchange Reserve Management by : International Monetary Fund
Download or read book Guidelines for Foreign Exchange Reserve Management written by International Monetary Fund and published by International Monetary Fund. This book was released on 2005-04-15 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: Of country practices -- Country case studies -- Appendixes.
Book Synopsis Optimal Reserves in the Eastern Caribbean Currency Union by : Wendell A. Samuel
Download or read book Optimal Reserves in the Eastern Caribbean Currency Union written by Wendell A. Samuel and published by International Monetary Fund. This book was released on 2009-04 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify structural breaks in economic growth in 140 countries and use these to define "growth spells: " periods of high growth preceded by an upbreak and ending either with a downbreak or with the end of the sample. Growth spells tend to be shorter in African and Latin American countries than elsewhere. We find that growth duration is positively related to: the degree of equality of the income distribution; democratic institutions; export orientation (with higher propensities to export manufactures, greater openness to FDI, and avoidance of exchange rate overvaluation favorable for duration); and macroeconomic stability (with even moderate instability curtailing growth duration)
