Real exchange rate and international reserves in the era of financial integration

Joshua Aizenman, Sy-Hoa Ho, Luu Duc Toan Huynh, Jamel Saadaoui and Gazi Uddin

Journal of International Money and Finance, 2024, vol. 141, issue C

Abstract: The global financial crisis has brought increased attention to the consequences of international reserves holdings. In an era of high financial integration, we investigate the relationship between the real exchange rate and international reserves using nonlinear regressions and panel threshold regressions over 110 countries from 2001 to 2020. Our study shows the level of financial-institution development plays an essential role in explaining the buffer effect of international reserves. Countries with a low development of their financial institutions may manage the international reserves as a shield to deal with the negative consequences of terms-of-trade shocks on the real exchange rate. We also find the buffer effect is stronger in countries with intermediate levels of financial openness.

Keywords: Real exchange rate; International reserves; Financial institutions (search for similar items in EconPapers)
JEL-codes: F15 F21 F32 F36 G20 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Real exchange rate and international reserves in the era of financial integration (2023)
Working Paper: Real Exchange Rate and International Reserves in the Era of Financial Integration (2023)
Working Paper: Real exchange rate and international reserves in the era of financial integration (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:141:y:2024:i:c:s0261560624000019

DOI: 10.1016/j.jimonfin.2024.103014

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