Foreign Reserve Adequacy in sub-Saharan Africa

International Monetary Fund
Authors registered in the RePEc Author Service: Anubha Dhasmana and Paulo Drummond

No 08/150, IMF Working Papers from International Monetary Fund

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,

Keywords: Foreign exchange reserves; Reserves adequacy; Regional shocks (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr and nep-dev
Date: 2008-06-01
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