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Global Impact of a Shift in Foreign Reserves to Euros

Fritz Breuss (), Werner Roeger and Jan in 't Veld

No 345, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper considers the potential impact of a shift in official foreign reserves from dollars to euros using a global DSGE model. This paper uses QUEST III, a multi-region global DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65 percent dollars and 25 percent euros to equal 45 percent shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings.

Keywords: Globalization; Global imbalances; reserve currency; euro area; DSGE modelling; Global Impact of a Shift in Foreign Reserves to Euros; Breuss; Roeger; in 't Veld (search for similar items in EconPapers)
JEL-codes: C68 F31 F32 (search for similar items in EconPapers)
Date: 2008-11
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Journal Article: Global impact of a shift in foreign reserves to euros (2009) Downloads
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