Discussion of Rasmus Fatum and James Yetman’s paper

Hans Genberg

A chapter in The price, real and financial effects of exchange rates, 2018, vol. 96, pp 53-56 from Bank for International Settlements

Abstract: The objective of the paper by Fatum and Yetman (F-Y hereafter) is to provide empirical evidence on whether the accumulation of international reserves by the central bank will lead to increased risk-taking by the private sector. Why might such risk-taking come about? To the extent that international reserves provide free insurance to domestic economic agents against the risk of not being able to secure foreign exchange in the market during a crisis, the resulting moral hazard environment may lead these agents to accumulate more risk.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bis:bisbpc:96-07

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