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

No 30891, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F30 F40 F44 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mon and nep-opm
Note: IFM
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Citations: View citations in EconPapers (2)

Published as Joshua Aizenman & Sy-Hoa Ho & Luu Duc Toan Huynh & Jamel Saadaoui & Gazi Salah Uddin, 2024. "Real exchange rate and international reserves in the era of financial integration," Journal of International Money and Finance, vol 141.

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Journal Article: Real exchange rate and international reserves in the era of financial integration (2024)
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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