The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications

Olivier Jeanne and Romain Ranciere

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Abstract: We present a model of the optimal level of international reserves for a small open economy seeking insurance against sudden stops in capital flows. We derive a formula for the optimal level of reserves and show that plausible calibrations can explain reserves of the order of magnitude observed in many emerging market countries. The buildup of reserves in emerging market Asia can be explained only if one assumes a large anticipated output cost of sudden stops and a high level of risk aversion.

Date: 2011-09
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Published in The Economic Journal, 2011, 121 (555), pp.905-930. ⟨10.1111/j.1468-0297.2011.02435.x⟩

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Related works:
Journal Article: The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications (2011)
Working Paper: The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications (2011)
Working Paper: The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754518

DOI: 10.1111/j.1468-0297.2011.02435.x

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