Contingent Reserves Management: An Applied Framework / Ricardo J. Caballero, Stavros Panageas.

Format:

Book

Author/Creator:

Caballero, Ricardo J.

Contributor:

National Bureau of Economic Research.

Panageas, Stavros.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10786.

NBER working paper series no. w10786

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Contingent Reserves Management

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden stop mechanism. We illustrate this point with a simple quantitative hedging model, where optimally used options and futures on the S&P100's implied volatility index (VIX), increases the expected reserves available during sudden stops by as much as 40 percent.

Notes:

Print version record

September 2004.