The Adequate and Optimal Level of Foreign Reserves for Costa Rica

Esteban Méndez-Chacón ()
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Esteban Méndez-Chacón: Department of Economic Research, Central Bank of Costa Rica

No 2102, Documentos de Trabajo from Banco Central de Costa Rica

Abstract: This research analyzes the level of international reserves for Costa Rica from the first quarter of 2015 to the third quarter of 2020. Both the adequate reserves approach and the optimal reserves approach are used. In the approach of adequate reserves, the indicators of imports, monetary aggregates, external debt service, the Wijnholds and Kapteyn (2001) indicator, and the metric of adequate reserves of the International Monetary Fund (IMF) are considered. In the optimal reserves approach, a model is proposed that contemplates an economy with deposits in foreign currency, terms of trade, and endogenous probability of balance of payments crisis. In general, it is concluded that international reserves in Costa Rica are at levels considered adequate according to the five indicators analyzed. Likewise, reserves are at levels close to optimal. Based on the projections of the Macroeconomic Program 2021-2022, it is estimated that during 2021 and 2022, reserves would meet the levels suggested by the indicators for most of the quarters, although sometimes the gap between recommended reserve levels and projected reserves could reach a maximum of up to 1,66 pp of GDP. ***Resumen: Esta investigación analiza el nivel de reservas internacionales para Costa Rica desde el I trimestre del 2015 al III trimestre del 2020. Se utiliza tanto el enfoque de las reservas adecuadas como el de las reservas óptimas. En el enfoque de las reservas adecuadas se consideran los indicadores de importaciones, agregados monetarios, servicio de la deuda externa, el indicador de Wijnholds y Kapteyn (2001), y la métrica de reservas adecuadas del Fondo Monetario Internacional (FMI). En el enfoque de las reservas óptimas, se plantea un modelo que contempla una economía con depósitos en moneda extranjera, términos de intercambio y probabilidad endógena de crisis de balanza de pagos. En general, se concluye que las reservas internacionales en Costa Rica se ubican en niveles considerados adecuados según los cinco indicadores analizados. Asimismo, las reservas se encuentran en niveles cercanos al óptimo. A partir de las proyecciones del Programa Macroeconómico 2021-2022, se estima que durante el 2021 y el 2022, las reservas permitirían cubrir los niveles sugeridos por los indicadores la mayor parte de los trimestres, aunque en ocasiones la brecha entre los niveles recomendados de reservas y las reservas proyectadas podría alcanzar un máximo de hasta 1,66 p.p. del PIB.

Keywords: Foreign Reserves; External Crises; Bank Runs; Financial Dollarization, Reservas internacionales, Crisis externas, Corridas bancarias, Dolarización financiera (search for similar items in EconPapers)
JEL-codes: F31 F32 F37 F41 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2021-02
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Persistent link: https://EconPapers.repec.org/RePEc:apk:doctra:2102

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