Optimal Holdings of International Reserves: Self-insurance against Sudden Stops

Guillermo Calvo, Alejandro Izquierdo and Rudy Loo-Kung

Monetaria, 2013, vol. XXXV, issue 1, 1-35

Abstract: This paper addresses the issue of the optimal stock of international reserves in terms of a statistical model in which reserves affect both the probability of a sudden stop –as well as associated output costs– by reducing the balance-sheet effects of liability dollarization. Observed reserves on the eve of the global financial crisis were–on average–not distant from optimal reserves

Date: 2013
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Working Paper: Optimal Holdings of International Reserves: Self-Insurance against Sudden Stop (2012)
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