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Optimal International Reserves Holdings In Emerging Markets Economies: The Brazilian Case

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  • Antonio Francisco Silva Jr.
  • Érica Domingos da Silva

Abstract

This paper discusses the optimal international reserves holding for Brazilian economy. The optimal is determined with the buffer stock (inventory) model, using a time series approach. This paper differs from traditional approaches that run cross-section analysis. We evaluate Brazilian's reserves holdings with the model and discuss the role of IMF accord in the reserves holdings. The paper also presents evidence to support the idea of fewer needs to hold international reserves in a floating foreign exchange rate regime than in a fixed one. Conclusions highlight that Brazilians' foreign reserves are slightly above the optimal level and the model may allow the country to evaluate the needs of IMF accord renew.

Suggested Citation

  • Antonio Francisco Silva Jr. & Érica Domingos da Silva, 2004. "Optimal International Reserves Holdings In Emerging Markets Economies: The Brazilian Case," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 078, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    • Handle: RePEc:anp:en2004:078
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    File URL: https://www.anpec.org.br/encontro2004/artigos/A04A078.pdf
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    References listed on IDEAS

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    1. Bar-Ilan, Avner & Marion, Nancy P. & Perry, David, 2007. "Drift control of international reserves," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3110-3137, September.
    2. Joshua Aizenman & Nancy Marion, 2004. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Economic Journal, Royal Economic Society, vol. 114(497), pages 569-591, July.
    3. Mr. Robert P Flood & Ms. Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 2002/062, International Monetary Fund.
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    5. Ramachandran, M., 2004. "The optimal level of international reserves: evidence for India," Economics Letters, Elsevier, vol. 83(3), pages 365-370, June.
    6. Ferhan Salman & Aslihan Salih, 1999. "Modeling the Volatility In the Central Bank Reserves In An Emerging Market Setting," Working Papers 9901, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    8. repec:bla:ecorec:v:69:y:1993:i:207:p:411-15 is not listed on IDEAS
    9. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, vol. 91(362), pages 507-514, June.
    10. Arthur Grimes, 1993. "International Reserves under Floating Exchange Rates: Two Paradoxes Explained," The Economic Record, The Economic Society of Australia, vol. 69(4), pages 411-415, December.
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    Citations

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    Cited by:

    1. Marco Antônio F. de H. Cavalcanti & Christian Vonbun, 2007. "Reservas internacionais ótimas para o Brasil: uma análise simples de custo-benefício para o período 1999-2007," Discussion Papers 1315, Instituto de Pesquisa Econômica Aplicada - IPEA.
    2. JALIL, Abdul & BOKHARI, Sheharyar, 2008. "The Optimal Demand For Foreign Exchange Reserves In Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(1), pages 33-48.
    3. Antonio Francisco A. Silva Jr, 2011. "The Self-insurance Role of International Reserves and the 2008-2010 Crisis," Working Papers Series 256, Central Bank of Brazil, Research Department.
    4. Shijaku, Gerti, 2012. "Optimal level of reserve holding: an empirical investigation in the case of Albania," MPRA Paper 79091, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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