Financial Stability, the Trilemma, and International Reserves
Maurice ObstfeldDepartment of Economics University of California, Berkeley 549 Evans Hall #3880 Berkeley, CA 94720-3880Jay ShambaughUC Davis,Alan TaylorDepartment of Economics University of California, Berkeley 549 Evans Hall #3880 Berkeley, CA 94720-3880
2008en
ABI
Abstract
The rapid growth of international reserves---a development concentrated in the emerging markets---remains a puzzle. In this paper we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt.
Identifiers
Citations and references
Cited by 20 references