Financial Stability, the Trilemma, and International Reserves / Maurice Obstfeld, Jay C. Shambaugh, Alan M. Taylor.

Format:

Book

Author/Creator:

Obstfeld, Maurice.

Contributor:

National Bureau of Economic Research.

Shambaugh, Jay C.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14217.

NBER working paper series no. w14217

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

The rapid growth of international reserves---a development concentrated in the emerging markets---remains a puzzle. In this paper we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt.

Notes:

Print version record

August 2008.