Optimal Reserves in Financially Closed Economies / Olivier Jeanne, Damiano Sandri.

Format:

Book

Government document

Author/Creator:

Jeanne, Olivier.

Contributor:

Sandri, Damiano.

Series:

IMF Working Papers; Working Paper ; No. 2016/092

IMF Working Papers

Language:

English

Subjects (All):

Econometric models.

Physical Description:

1 online resource (30 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2016.

Summary:

Financially closed economies insure themselves against current-account shocks using international reserves. We characterize the optimal management of reserves using an open-economy model of precautionary savings and emphasize several results. First, the welfare-based opportunity cost of reserves differs from the measures often used by practitioners. Second, under plausible calibrations the model is consistent with the rule of thumb that reserves should be close to three months of imports. Third, simple linear rules can capture most of the welfare gains from optimal reserve management. Fourth, policymakers should place more emphasis on how to use reserves in response to shocks than on the reserve target itself.

Contents:

Cover; Contents; 1 Introduction; 2 A model of optimal reserves management; 2.1 Model structure; 2.2 Carry cost and the target level of reserves; 3 Calibration; 4 Quantitative Results; 4.1 Target and average levels of reserves; 4.2 Impulse response functions; 4.3 Linear rules; 5 Conclusion; 6 Appendix: Certainty Equivalence

Notes:

Description based upon print version of record.

Description based on online resource; title from PDF title page (ebrary, viewed October 18, 2016).

ISBN:

9781484334270

1484334272

9781484337028

1484337026