OECD Economics Department Working Papers

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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

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Understanding the Recent Surge in the Accumulation of International Reserves You or your institution have access to this content

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Petar Vujanovic1
Author Affiliations
  • 1: OECD, France

24 May 2011
Bibliographic information

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This paper looks at the empirical determinates of foreign currency reserve holdings across a panel of around 130 countries between 1980 and 2008. The paper builds on the existing literature by adopting a panel error-correction model specification and by extending the sample to include the recent period that saw a continuing acceleration in the accumulation of reserves in many countries. The results of the analysis suggest that the levels of trade and domestic financial depth are robust determinates of the level of reserves in the long run, particularly over the past decade and a half. The estimations also find that changes in GDP, the exchange rate regime, exchange rate volatility, and financial openness can all have permanent one-off effects on the level of reserves. Furthermore, country fixed effects are found to be significant, suggesting that time-invariant country specific factors are important in explaining the variance in reserve holdings across countries. Nevertheless, several countries stick out in terms of holding reserves well in excess of that implied by these empirical results, above all in recent years. Among these countries, China and Japan are particularly notable, especially when the deviation from average behaviour is expressed in dollar terms.
sudden stop, money supply, central banks, crisis, current account, reserves, trade, foreign currency
JEL Classification:
  • E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy
  • E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies
  • F21: International Economics / International Factor Movements and International Business / International Investment ; Long-Term Capital Movements
  • F31: International Economics / International Finance / Foreign Exchange
  • F36: International Economics / International Finance / Financial Aspects of Economic Integration
  • F41: International Economics / Macroeconomic Aspects of International Trade and Finance / Open Economy Macroeconomics
  • N10: Economic History / Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations / General, International, or Comparative
  • O24: Economic Development, Innovation, Technological Change, and Growth / Development Planning and Policy / Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy
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