International reserves and rollover risk

Javier Bianchi, Juan Hatchondo and Leonardo Martinez

No 13-01, Working Paper from Federal Reserve Bank of Richmond

Abstract: Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.

Keywords: Economic growth; Business cycles; Financial markets; Financial institutions (search for similar items in EconPapers)
Pages: 54 pages
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-dge and nep-opm
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: International Reserves and Rollover Risk (2018)
Working Paper: International Reserves and Rollover Risk (2016)
Working Paper: International reserves and rollover risk (2013)
Working Paper: International Reserves and Rollover Risk (2013)
Working Paper: International Reserves and Rollover Risk (2012)
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