Foreign reserves, crises and growth[Réserves de change, crises et croissance]

This thesis includes three essays on foreign reserves, crises and growth. Chapter 1 proposes a theoretical model to look at foreign reserve accumulation in fast-growing emerging economies. The demand for foreign reserves stems from the interaction between productivity growth and underdevelopment of the domestic financial market. During economic transition, foreign reserve accumulation is proved to be welfare improving as long as private capital flows are controlled. Chapter 2 is an empirical work on the role of foreign reserves during the global financial crisis. It is found that the level of reserves matters: countries with high reserves relative to short-term debt suffered less from the crisis, particularly if associated with a less open capital account. In the immediate aftermath of the crisis, countries that depleted foreign reserves during the crisis quickly rebuilt their stocks. This rapid rebuilding has, however, been followed by a deceleration in the pace of accumulation. Chapter 3 takes a political economy stance and shows how reserves can be used to stabilize the domestic economy when the private sector faces credit constraint and currency mismatch. It is argued that both a targeted lending in foreign currency or a fiscal spending financed by foreign reserves help remove the bad equilibrium. Nevertheless, these two policy tools differ in the mechanism through which they stabilize the domestic economy and in terms of the amount of foreign reserves needed.