The accumulation of foreign exchange by central banks: Fear of capital mobility?

Andreas Steiner

Journal of Macroeconomics, 2013, vol. 38, issue PB, 409-427

Abstract: Central banks’ foreign exchange holdings have increased significantly in the recent past. This article explains this development as a result of the liberalisation of international capital markets. First, central banks accumulate reserves in order to protect the economy from detrimental effects of sudden stops in capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a “fear of capital mobility” suffered by central banks.

Keywords: International reserves; Capital mobility; Macroeconomic trilemma (search for similar items in EconPapers)
JEL-codes: E58 F31 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070413001249
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Accumulation of Foreign Exchange by Central Banks: Fear of Capital Mobility? (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:38:y:2013:i:pb:p:409-427

DOI: 10.1016/j.jmacro.2013.08.002

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().