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How much should I hold? Reserve Adequacy in Emerging Markets and Small Islands

Nkunde Mwase

No 2012/205, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the drivers of reserves in emerging markets (EMs) and small island (SIs) and develops an operational metric for estimating reserves in SIs taking into account their unique characteristics. It uses quantile regression techniques to allow the estimated factors driving reserves holdings to vary along the reserves’ holding distribution and tests for equality among the slope coefficients of the various quantile regressions and the overall models. F-tests comparing the inter-quantile differences could not reject the that the models for the different quantiles of SIs reserve distribution were similar but this was rejected for EMs distribution suggesting that models explaining drivers of reserve holdings should take into account the country’s reserve holdings. Empirical analysis suggests that the metric performs better than existing metrics in reducing crisis probabilities in SIs.

Keywords: WP; holding; reserve holding; Reserves; Logit and quantile regression; Islands; Emerging markets; EMP; Debt; Deleveraging; holdings model; models in OLS regression; country holding; demand holding; reserve distribution; precautionary motive; regression method; crisis episode; reserve stockpile; Monetary base; Exchange rate arrangements; Exports; Exchange rate flexibility; Europe; Global (search for similar items in EconPapers)
Pages: 44
Date: 2012-08-01
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Citations: View citations in EconPapers (5)

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