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Foreign Reserve Adequacy in Sub-Saharan Africa

Paulo Drummond and Anubha Dhasmana

MPRA Paper from University Library of Munich, Germany

Abstract: This paper looks at the question of adequacy of reserves in sub-Saharan African countries in light of the shocks faced by these countries. Literature on optimal reserves so far has not paid attention to the particular shocks facing low-income countries. We use a two-good endowment economy model facing terms of trade and aid shocks to derive the optimal level of reserves by comparing the cost of holding reserves with their benefits as an insurance against a shock. We find that the optimal level of reserves depends upon the size of these shocks, their probability, and the output cost associated with them.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2008-06-01
New Economics Papers: this item is included in nep-afr and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9729

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