Financial development, international reserves, and real exchange rate dynamics: Insights from the Europe and Central Asia region

Jamel Saadaoui

Finance Research Letters, 2024, vol. 70, issue C

Abstract: This study examines the impact of international reserves on real exchange rate (RER) stability in the Europe and Central Asia (ECS) region, focusing on how financial development levels affect this relationship. Using panel threshold regression, the analysis reveals that international reserves significantly stabilize RER when reserves exceed 17.28 % of GDP, especially in countries with underdeveloped financial systems. The findings suggest that reserves play a more critical role in less developed financial markets, providing insights for policymakers on optimal reserve management and financial development strategies in emerging economies.

Keywords: Real exchange rate; International reserves; Financial development; Panel threshold regression, Emerging markets, Economic stability (search for similar items in EconPapers)
JEL-codes: F31 F33 G15 O16 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013886

DOI: 10.1016/j.frl.2024.106359

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