Do Oil Endowment and Productivity Matter for Accumulation of International Reserves?

Rasmus Fatum, Guozhong Zhu and Wenjie Hui
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Wenjie Hui: wenjiehui@pku.edu.cn

No GRU_2016_027, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: We develop a dynamic stochastic optimization model with oil price shocks to show that countries with certain combinations of oil endowment and productivity have strong precautionary incentives to accumulate foreign reserves in response to oil price shocks. Using the Simulated Method of Moments to estimate the model 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 reserves holding conventional variables such as trade- to-GDP ratio and capital openness. Overall, our results suggest that productivity and oil endowment are potentially important determinants of foreign reserves that for some countries should be considered as complements to conventional determinants.

Keywords: foreign reserves; oil price shocks; precautionary demand (search for similar items in EconPapers)
JEL-codes: E21 F40 Q43 (search for similar items in EconPapers)
Pages: 36 pages
New Economics Papers: this item is included in nep-ene and nep-mac
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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/27_Fatum.pdf (application/pdf)

Related works:
Journal Article: Do oil endowment and productivity matter for accumulation of international reserves? (2021)
Working Paper: Do oil endowment and productivity matter for accumulation of international reserves? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2016_027

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