The recent growth of international reserves in developing economies: A monetary perspective
Goncalo Pina
Journal of International Money and Finance, 2015, vol. 58, issue C, 172-190
Abstract:
The massive accumulation of international reserves in developing economies is a puzzling recent development in the world economy. This paper studies reserve accumulation as the outcome of a simple model in which the central bank smooths inflation. I explore the view that central banks accumulate reserves to face large fiscal shocks that need monetary financing. Central bank revenues are obtained through inflation, but inflation is distortionary. As a result, the central bank optimally accumulates international reserves in order to spread the costs associated with inflation over time. A simple numerical exercise for an average developing economy using data between 1970 and 2009 yields fast growth of international reserves.
Keywords: Inflation tax; Exchange rates; International reserves; Monetary policy (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:58:y:2015:i:c:p:172-190
DOI: 10.1016/j.jimonfin.2015.08.009
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