International Reserves: Facing Model Uncertainty

Soňa Benecká and Lubos Komarek ()

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: The abundant literature on the competing motives for holding international reserves stresses different factors, giving rise to a problem called model uncertainty. In this paper we search for the most important determinants of reserve holdings using data for 104 countries in 1999–2010 and evaluate their importance using Bayesian model averaging (BMA). We enrich the ongoing empirical discussion by examining the role of financial globalization and monetary policy and by introducing new variables and searching for alternatives to the traditional ones. The results confirm that trade openness and the broad-money-to-GDP ratio are the key determinants with a positive link to the level of reserves. On the other hand, financial development seems to lower the need for reserves.

Keywords: Bayesian model averaging; determinants; international reserves (search for similar items in EconPapers)
JEL-codes: C23 E58 F41 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: International reserves: Facing model uncertainty (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2014/03

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