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Optimal Reserve Management and Sovereign Debt / Laura Alfaro, Fabio Kanczuk.
- Format:
- Book
- Author/Creator:
- Alfaro, Laura.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w13216.
- NBER working paper series no. w13216
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2007.
- Summary:
- To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model that incorporates willingness-to-pay incentive problems. In this setup, debt and assets are not perfect substitutes, as reserves can be used even after a country has defaulted. We calibrate the model to a sample of emerging markets. We obtain that the reserve accumulation does not play a quantitatively important role in this model. In fact, the optimal policy is not to hold reserves at all. This finding is robust to considering interest rate shocks, sudden stops, contingent reserves and reserve dependent output costs.
- Notes:
- Print version record
- July 2007.
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