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Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence

Shin-ichi Fukuda () and Yoshifumi Kon

Working Papers from eSocialSciences

Abstract: Recently, a dramatic accumulation in foreign exchange reserves has been widely observed in developing countries. This paper explores the possible long-run impacts of this trend on macroeconomic variables in developing countries. We analyze a simple open economy model where increased foreign exchange reserves reduce the costs of liquidity risk. Given the amount of foreign exchange reserves, utility-maximizing representative agents decide consumption, capital stock, and labor input, as well as the amounts of liquid and illiquid external debt. The equilibrium values of these variables depend on the amount of foreign exchange reserves. A rise in foreign exchange reserves increases both liquid and total debt, while shortening debt maturity. [ADBI Working Paper 197]

Keywords: dramatic; foreign exchange reserves; developing countries; macroeconomic; consumption; capital stock; labor input (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-ifn and nep-opm
Note: Institutional Papers
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Citations: View citations in EconPapers (12)

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Chapter: Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence (2012) Downloads
Working Paper: Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence (2010) Downloads
Working Paper: Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence (2010) Downloads
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