Reserve accumulation, inflation and moral hazard: Evidence from a natural experiment

Livia Chitu

No 1880, Working Paper Series from European Central Bank

Abstract: This paper assesses whether international reserve accumulation can be inflationary because of moral hazard and incentive effects. It tests the hypothesis that an increase in international reserves may incentivise countries to become complacent and pursue less prudent policies due to the perceived safety provided by higher reserve holdings. The paper uses a unique natural experiment to solve the endogeneity problem between reserve accumulation and macroeconomic developments, namely the 2009 general allocation of Special Drawing Rights (SDR). This allocation JEL Classification: F30

Keywords: difference-in-differences; international reserves; moral hazard; natural experiment; propensity score matching estimates; special drawing right (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-opm
Note: 1840305
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161880

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