Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration

Joshua Aizenman () and Daniel Riera-Crichton ()

No 12363, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper evaluates the impact of international reserves, terms of trade shocks and capital flows on the real exchange rate (REER). We observe that international reserves cushions the impact of TOT shocks on the REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. Financial depth reduces the buffer role of IR in developing countries. Developing countries REER seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER.

JEL-codes: F15 F21 F32 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-ifn, nep-int and nep-sea
Date: 2006-07
Note: IFM ITI
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