Real exchange rate and international reserves in an era of growing financial and trade integration*

Joshua Aizenman and Daniel Riera-Crichton

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: This paper evaluates the impact of international reserves, terms of trade shocks and capital flows on the real exchange rate (REER). We observe that international reserves cushions the impact of TOT shocks on the REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. Financial depth reduces the buffer role of IR in developing countries. Developing countries REER seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER.

Keywords: Real exchange rate; Terms of trade; International reserves; volatility; shock absorber (search for similar items in EconPapers)
Date: 2007-02-01
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucscec:qt6dr794sb

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