International Reserves and Rollover Risk

Javier Bianchi, Juan Hatchondo and Leonardo Martinez

No 2013/033, IMF Working Papers from International Monetary Fund

Abstract: Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.

Keywords: WP; borrowing cost; short-term debt; international reserves; rollover risk; sudden stops; sovereign default; gross capital flows; long-duration bond; debt level; reserve holding; debt issuance; debt statistic; debt duration; income loss; Reserves accumulation; Personal income; Debt refinancing; Bonds; Global (search for similar items in EconPapers)
Pages: 40
Date: 2013-01-31
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Citations: View citations in EconPapers (30)

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Related works:
Journal Article: International Reserves and Rollover Risk (2018)
Working Paper: International Reserves and Rollover Risk (2016)
Working Paper: International reserves and rollover risk (2013)
Working Paper: International reserves and rollover risk (2013)
Working Paper: International Reserves and Rollover Risk (2012)
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