International Reserve Adequacy in the Gambia

Eugen Tereanu

No 2010/215, IMF Working Papers from International Monetary Fund

Abstract: This paper applies intertemporal models of precautionary saving to compute an optimal level of international reserves for The Gambia. The analysis focuses on current account shocks specific to a low-income economy with a significant import component and complements a more standard, rule-of-thumb reserve adequacy assessment. The results suggest a central range from 4.5 months to 7 months of imports, which is broadly aligned with the recent actual coverage. Notwithstanding parameter sensitivity, the simulations allow for more informed policy decisions that balance flexibility with a prudent approach to reserve use.

Keywords: WP; opportunity cost; reserve; yield; asset; coverage ratio; Gambia; Precautionary savings; Reserve adequacy; Optimal reserves; Balance of payments; adequacy indicator; reserve coverage; adequacy assessment; open economy; precautionary motive; import coverage indicator; reserve adequacy indicator; holdings in The Gambia; lower bound; coverage indicator; lower bound for the opportunity cost; International reserves; Imports; Consumption; Terms of trade; Reserve positions; West Africa; Sub-Saharan Africa; Global (search for similar items in EconPapers)
Pages: 16
Date: 2010-09-01
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Citations: View citations in EconPapers (2)

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