Financial Stability, the Trilemma, and International Reserves

Maurice Obstfeld, Alan Taylor and Jay Shambaugh

No 6693, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The rapid growth of international reserves|a development concentrated in the emerging markets|remains a puzzle. In this paper we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial- stability model seems to outperform both traditional models and recent explanations based on external short-term debt.

Keywords: Banking crises; Capital flight; Central banks; Exchange rate regimes; Financial development; Foreign exchange; Global imbalances; Guidotti-greenspan rule; International liquidity; Intervention (search for similar items in EconPapers)
JEL-codes: E44 E58 F21 F31 F36 F41 N10 O24 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
https://cepr.org/publications/DP6693 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Financial Stability, the Trilemma, and International Reserves (2010)
Working Paper: Financial Stability, the Trilemma, and International Reserves (2008)
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:cpr:ceprdp:6693

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6693

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().