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International reserves and rollover risk

Javier Bianchi () and Juan Hatchondo

No 151, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper provides a theoretical framework for quantitatively investigating the optimal accumulation of international reserves as a hedge against rollover risk. We study a dynamic model of endogenous default in which the government faces a tradeoff between the insurance benefits of reserves and the cost of keeping larger gross debt positions. A calibrated version of our model is able to rationalize large holdings of international reserves, as well as the procyclicality of reserves and gross debt positions. Model simulations are also consistent with spread dynamics and other key macroeconomic variables in emerging economies. The benefits of insurance arrangements and the effects of restricting the use of reserves after default are also analyzed.

Keywords: Macroeconomics; -; Econometric; models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-opm
Date: 2013
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http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0151.pdf (application/pdf)

Related works:
Journal Article: International Reserves and Rollover Risk (2018) Downloads
Working Paper: International Reserves and Rollover Risk (2016) Downloads
Working Paper: International reserves and rollover risk (2013) Downloads
Working Paper: International Reserves and Rollover Risk (2013) Downloads
Working Paper: International Reserves and Rollover Risk (2012) Downloads
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