Can High Reserves Offset Weak Fundamentals? A Simple Model of Precautionary Demand for Reserves

Jie Li () and Ramkishen Rajan

No 2005-09, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: Apart from exchange rate objectives which have resulted in reserve accumulation as a side effect, Asian countries have chosen explicitly to build up reserves at least in part for precautionary motives. This paper explores the issue of optimal precautionary demand for reserves by a central bank within a context of a simple analytical model. The model suggests that, in general, high reserves can help offset moderately weak fundamentals. However, if fundamentals are sufficiently weak, no level of reserves will be able to counterbalance the weak fundamentals. This is broadly consistent with the escape clause based second-generation models of currency crisis.

Keywords: crisis management; crisis prevention; currency crisis; precautionary motive; reserves. (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.adelaide.edu.au/cies/papers/0509.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.adelaide.edu.au/cies/papers/0509.pdf [301 https://www.adelaide.edu.au/cies/papers/0509.pdf]--> https://www.adelaide.edu.au/cies/papers/0509.pdf)

Related works:
Journal Article: Can High Reserves Offset Weak Fundamentals? A Simple Model of Precautionary Demand for Reserves (2006)
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:adl:cieswp:2005-09

Access Statistics for this paper

More papers in Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dmitriy Kvasov ( this e-mail address is bad, please contact ).