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A Macroprudential Theory of Foreign Reserve Accumulation / Fernando Arce, Julien Bengui, Javier Bianchi.
- Format:
- Book
- Author/Creator:
- Arce, Fernando.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26236.
- NBER working paper series no. w26236
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross section, and can quantitatively account for the recent upward trend in international reserves.
- Notes:
- Print version record
- September 2019.
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