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International reserves: Facing model uncertainty

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  • Benecká, Soňa
  • Komarek, Lubos

Abstract

The abundant literature on the competing motives for holding international reserves stresses different factors, giving rise to a problem called model uncertainty. In this paper we search for the most important determinants of reserve holdings using data for 104 countries over the period 1999–2010 and evaluate their importance using Bayesian model averaging (BMA). We enrich the ongoing empirical discussion by examining the role of financial globalization and monetary policy and by introducing new variables and searching for alternatives to the traditional ones. The results confirm that trade openness and the broad-money-to-GDP ratio are the key determinants with a positive link to the level of reserves. On the other hand, financial development seems to lower the need for reserves.

Suggested Citation

  • Benecká, Soňa & Komarek, Lubos, 2018. "International reserves: Facing model uncertainty," Economic Systems, Elsevier, vol. 42(3), pages 523-531.
  • Handle: RePEc:eee:ecosys:v:42:y:2018:i:3:p:523-531
    DOI: 10.1016/j.ecosys.2018.02.002
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    2. Mile Bošnjak & Vlatka Bilas & Gordana Kordić, 2020. "Determinants Of Foreign Exchange Reserves In Serbia And North Macedonia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(226), pages 103-120, July – Se.

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    More about this item

    Keywords

    Bayesian model averaging; Panal data; International reserves;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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