Working Paper: NBER ID: w17362
Authors: Kathryn Me Dominguez; Yuko Hashimoto; Takatoshi Ito
Abstract: This study examines whether pre-crisis international reserve accumulations, as well as exchange rate and reserve policy decisions made during the global financial crisis, can help to explain cross-country differences in post-crisis economic performance. Our approach focuses not only on the total stock of official reserves held by countries, but also on the decisions by governments to purchase or sell reserve assets during the crisis period. We introduce new data made available through the IMF Special Data Dissemination Standard (SDDS) Reserve Template, which allow us to distinguish interest income and valuation changes in the stock of official reserves from the actively managed component of reserves. We use this novel data to gauge how (and whether) reserve accumulation policies influenced the economic and financial performance of countries during and after the global crisis. Our findings support the view that higher reserve accumulations prior to the crisis are associated with higher post-crisis GDP growth.
Keywords: international reserves; global financial crisis; economic performance
JEL Codes: F3; F31; F32; F33; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher reserve accumulations before the crisis (F65) | Higher postcrisis GDP growth (O49) |
| Government decisions to manage reserves during the crisis (H12) | Influencing economic outcomes (F69) |
| Active management of reserves (E63) | More favorable GDP recovery post-crisis (F69) |
| Continued accumulation of reserves until output decline (D25) | Better economic performance (P17) |