EconPapers    
Economics at your fingertips  
 

International Reserves versus External Debts: Can International reserves avoid future Financial Crisis in indebted Countries ?

Layal Mansour Ichrakieh

No 1329, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: The aim of this paper is to evaluate the economic consequences on the countries that on one hand protect themselves from future financial crises by accumulating international reserves (IR) while on the other hand expose themselves to severe financial crisis due to their excessive internal and/or external public debt. Using the Financial Stress Indicator (FSI) proposed by Balakrishnan et al (2009) and IMF -which cover several aspects of financial crisis- and by applying the Markov switching model with time varying, we estimated the probability whether an indebted country is vulnerable to crises despite its accumulation of IR -acting as a buffer stock and self-insurance-. We studied the case of five emerging countries in Asia and Latin America that had increased both of their IR and public debts, and found that debt had increased the likelihood for a country to suffer from financial crisis, however IR did not necessarily provide “Peace” in the indebted countries except of some exceptions. We conclude that although debt and international reserves have theoretically opposite economic concerns for a country, the deleterious effects of debts might outweigh in most cases the beneficial effects of IR

Keywords: Monetary policy; International Reserves; External Debts; Financial Crisis; Financial Stress Indicator (search for similar items in EconPapers)
JEL-codes: C22 E52 F31 G01 H63 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-lam, nep-ltv, nep-mac, nep-mon and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
ftp://ftp.gate.cnrs.fr/RePEc/2013/1329.pdf (application/pdf)

Related works:
Working Paper: International Reserves versus External Debts: Can International reserves avoid future Financial Crisis in indebted Countries ? (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1329

Access Statistics for this paper

More papers in Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon Contact information at EDIRC.
Bibliographic data for series maintained by Nelly Wirth ( this e-mail address is bad, please contact ).

 
Page updated 2025-03-19
Handle: RePEc:gat:wpaper:1329