Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets

Andreas Hoffmann () and Axel Loeffer ()

ICER Working Papers from ICER - International Centre for Economic Research

Abstract: The paper sheds light on the link between the interest rate policy in large advanced economies with international funding and reserve currencies (the United States and the Euro Area) and the use of reserve requirements in emerging markets. Using reserve requirement data for 28 emerging markets from 1998 to 2012 we provide evidence that emerging market central banks tend to raise reserve requirements when interest rates in international funding markets decline or financial infl ows accelerate to preserve fnancial stability. In contrast, when global liquidity risk rises and funding from the large advanced economies dries up emerging markets lower reserve requirements to stabilize the banking system that is in need of liquidity.

Keywords: Reserve Requirements; Interest Rates; Emerging Markets (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Low interest rate policy and the use of reserve requirements in emerging markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpicer:01-2014

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