Hoarding for stormy days-Test of international reserves adjustment providing financial buffer stock services

摘要

This paper outlines a tractable cost-benefit analysis of the buffer stock financial services provided by international reserves (IR) and applies it to eight of the largest Emerging Markets (BRICS, Indonesia, Mexico, Turkey) during 2000-2019. The efficient management of IR generates sizable benefits for countries characterized by hard-currency external debt. These benefits increase with the volatility of the real exchange rates and sovereign spreads. While the first-best policy calls for prudential regulations, counter-cyclical management of hoarding reserves in good times and selling them in bad times provides buffers stock financial services adding up to about 3% of the gross domestic product during our sample period.