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The recent growth of international reserves in developing economies: A monetary perspective

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  • Pina, Gonçalo

Abstract

The massive accumulation of international reserves in developing economies is a puzzling recent development in the world economy. This paper studies reserve accumulation as the outcome of a simple model in which the central bank smooths inflation. I explore the view that central banks accumulate reserves to face large fiscal shocks that need monetary financing. Central bank revenues are obtained through inflation, but inflation is distortionary. As a result, the central bank optimally accumulates international reserves in order to spread the costs associated with inflation over time. A simple numerical exercise for an average developing economy using data between 1970 and 2009 yields fast growth of international reserves.

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  • Pina, Gonçalo, 2015. "The recent growth of international reserves in developing economies: A monetary perspective," Journal of International Money and Finance, Elsevier, vol. 58(C), pages 172-190.
    • Handle: RePEc:eee:jimfin:v:58:y:2015:i:c:p:172-190
    DOI: 10.1016/j.jimonfin.2015.08.009
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    Cited by:

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    2. Zehri, Chokri, 2022. "Asymmetric impact of capital controls on international trade," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    3. Javid Suleymanli, 2022. "Differences in the Determinants of National Reserves across G7 and Rising Power Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 12(2), pages 431-443, March.
    4. Fadia Al Hajj & Gilles Dufrénot & Benjamin Keddad, 2021. "Exchange rate policy and external vulnerabilities in Sub-Saharan Africa: nominal, real or mixed targeting?," Applied Economics, Taylor & Francis Journals, vol. 53(3), pages 380-399, January.
    5. Jiang, Zhuhua & Yoon, Seong-Min, 2024. "Interdependence between foreign exchange rate and international reserves: Fresh evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    6. Kuk Mo Jung & Ju Hyun Pyun, 2020. "Out-of-Sample Analysis of International Reserves for Emerging Economies with a Dynamic Panel Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 67(5), pages 675-695.
    7. Luis Cabezas & José De Gregorio, 2018. "Accumulation of Reserves in Emerging and Developing Countries: Mercantilism vs. Insurance," Working Papers wp467, University of Chile, Department of Economics.
    8. Oladejo Tokunbo Bada & Kehinde Adekunle Adetiloy & Felicia Omowunmi Olokoyo, 2022. "Educational Factors As Determinant Of International Reserves Accumulation In Organisation Of Petroleum Exporting Countries," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 8(2).
    9. Chokri Zehri, 2023. "The Volatility Lowering Effects of Capital Controls," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(3), pages 385-408, September.
    10. Jean-Pierre Allegret & Audrey Allegret, 2018. "The role of international reserves holding in buffering external shocks," Applied Economics, Taylor & Francis Journals, vol. 50(29), pages 3128-3147, June.
    11. M.R. Malefane, 2023. "Economic implications of external monetary policy shocks for Lesotho: An empirical investigation," Journal of Economic Policy and Management Issues, JEPMI, vol. 2(2), pages 65-75.
    12. Vu Manh Hoai Nguyen & Tin Huu Ho & Luan Huynh Nguyen & An Thi Ha Pham, 2023. "The Impact of Trade Openness on Economic Stability in Asian Countries," Sustainability, MDPI, vol. 15(15), pages 1-20, July.
    13. Pina, Gonçalo, 2017. "International reserves and global interest rates," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 371-385.
    14. Luis Cabezas & José Gregorio, 2019. "Accumulation of reserves in emerging and developing countries: mercantilism versus insurance," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(4), pages 819-857, November.

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