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International Reserve Management under Rollover Crises

Author

Listed:
  • Mauricio Barbosa-Alves

    (University of Minnesota)

  • Javier Bianchi

    (Federal Reserve Bank of Minneapolis)

  • César Sosa-Padilla

    (University of Notre-Dame/NBER)

Abstract

This paper investigates how a government should manage international reserves whenit faces the risk of a rollover crisis. We ask, should the government accumulate reservesor reduce debt to make itself less vulnerable? We show that the optimal policy entailsinitially reducing debt, followed by a subsequent increase in both debt and reserves asthe government approaches a safe zone. Furthermore, we uncover that issuing additionaldebt to accumulate reserves can lead to a reduction in sovereign spreads.

Suggested Citation

  • Mauricio Barbosa-Alves & Javier Bianchi & César Sosa-Padilla, 2024. "International Reserve Management under Rollover Crises," Working Papers 321, Red Nacional de Investigadores en Economía (RedNIE).
  • Handle: RePEc:aoz:wpaper:321
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    References listed on IDEAS

    as
    1. Harold L. Cole & Daniel Neuhann & Guillermo Ordoñez, 2022. "Information Spillovers and Sovereign Debt: Theory Meets the Eurozone Crisis," NBER Working Papers 30216, National Bureau of Economic Research, Inc.
    2. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    3. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    4. Harold Cole & Daniel Neuhann & Guillermo Ordoñez, 2022. "Asymmetric Information and Sovereign Debt: Theory Meets Mexican Data," Journal of Political Economy, University of Chicago Press, vol. 130(8), pages 2055-2109.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Maeng, F. S., 2024. "Default, Inflation Expectations, and the Currency Denomination of Sovereign Bonds," Cambridge Working Papers in Economics 2438, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    International reserves; sovereign debt; rollover crises.;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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