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Reserves and Risk: Evidence from China

Rasmus Fatum, Takahiro Hattori () and Yohei Yamamoto
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Takahiro Hattori: Hitotsubashi University

No GRU_2020_013, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: We consider if the Chinese accumulation of reserves is associated with unintended consequences in the form of increased private sector risk taking. Using sovereign credit default swap spreads and stock index prices as indicators of risk taking we provide evidence to suggest that as reserve holdings increase, so does the willingness of the private sector to take on more risk. This is an important finding that adds credence to the suggestion that insurance through costly reserves, to be used in the event of a crisis, may lead to private sector actions that in and of themselves make it more likely that this insurance will be used.

Keywords: International reserves; risk taking; China (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-05-17
New Economics Papers: this item is included in nep-cna and nep-ias
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