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Limiting risk premia in EMEs: The role of FX reserves

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  • Kohlscheen, E.

Abstract

Low debt and inflation, and higher growth reduce default risk. FX reserves do not matter for risk whenever CDS spreads are below the median. But higher FX buffers clearly reduce risk at the higher end of the sovereign risk spectrum.

Suggested Citation

  • Kohlscheen, E., 2020. "Limiting risk premia in EMEs: The role of FX reserves," Economics Letters, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:ecolet:v:196:y:2020:i:c:s016517652030344x
    DOI: 10.1016/j.econlet.2020.109567
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    References listed on IDEAS

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    1. Dominguez, Kathryn M.E. & Hashimoto, Yuko & Ito, Takatoshi, 2012. "International reserves and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 388-406.
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    6. Levy Yeyati, Eduardo, 2008. "The cost of reserves," Economics Letters, Elsevier, vol. 100(1), pages 39-42, July.
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    8. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
    9. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
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    Cited by:

    1. Ahmed, Rashad & Aizenman, Joshua & Saadaoui, Jamel & Uddin, Gazi Salah, 2023. "On the effectiveness of foreign exchange reserves during the 2021-22 U.S. monetary tightening cycle," Economics Letters, Elsevier, vol. 233(C).
    2. Yawen Wang & Qing Wang & Zhaopeng Xing, 2022. "Climate Disaster Losses and Foreign Exchange Reserve Dynamics: Evidence of East Asia Pacific," Sustainability, MDPI, vol. 14(21), pages 1-15, November.

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    More about this item

    Keywords

    Debt; Emerging markets; Fiscal policy; Sovereign risk; International reserves;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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