How Do Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes

Quy Ta, Yothin Jinjarak and Ilan Noy

Open Economies Review, 2022, vol. 33, issue 5, No 7, 945-971

Abstract: Abstract We evaluate the change in international reserves in the aftermath of significant external shocks by using a quasi-experimental setup and focusing on earthquakes. Our objective is to understand the macroeconomic dynamics of quake-affected countries ex-post, and their ex-ante disaster risk mitigation strategies. The estimation is done on a panel of 103 countries over the period 1979–2016. We find that in the five years following a large earthquake: (i) Countries exposed to it accumulate reserves ex-post for precautionary reasons, supported by the inflows of foreign assistance and money expansion; (ii) Quake-prone countries tend to hold fewer reserves relative to the non-prone countries, suggested by the richer set of other disaster preventive measures in place for the former; (iii) The patterns of reserves holding post-earthquake vary with a country’s income level and other macroeconomic fundamentals.

Keywords: Disasters; Earthquakes; International Reserves; Foreign Exchange Holding (search for similar items in EconPapers)
JEL-codes: F31 F41 Q54 (search for similar items in EconPapers)
Date: 2022
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Working Paper: How Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes (2020)
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DOI: 10.1007/s11079-022-09683-5

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