 Do oil endowment and productivity matter for accumulation of international reserves?Rasmus Fatum, Guozhong Zhu and Wenjie Hui Journal of International Money and Finance, 2021, vol. 117, issue C Abstract: Motivated by the observation that a country tends to have more official foreign reserves if its crude oil endowment is large (small) but its productivity is low (high), we develop and estimate a dynamic stochastic optimization model to show that precautionary incentives against oil price shocks can account for a substantial part of the effects of productivity and oil endowment on a country’s foreign reserves. We demonstrate how oil price shocks are absorbed by changes in foreign reserves which, in turn, leads to less variation in aggregate consumption. Along with productivity and oil endowment, we also consider as determinants of foreign reserves conventional variables such as trade-to-GDP ratio and capital openness. Overall, our results suggest that ignoring productivity and oil endowment may lead to large bias in the estimates of some conventional determinants of a country’s foreign reserves. JEL-codes: E21 F40 Q43 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000875 DOI: 10.1016/j.jimonfin.2021.102436 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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