“For a few dollars more: Reserves and growth in times of crises”

This paper, coauthored with Matthieu Bussière (Banque de France), Gong Cheng (European Stability Mechanism), and Noëmie Lisack (EUI), is now published and online.

Based on a dataset of 112 emerging economies and developing countries, this paper addresses the question whether the accumulation of international reserves has effectively protected countries during the 2008–09 financial crisis. More specifically, the paper investigates the relation between international reserves and the existence of capital controls. We find that the level of reserves matters: countries with high reserves relative to short-term debt suffered less from the crisis, particularly when associated with a less open capital account. This suggests some degree of complementarity between reserve accumulation and capital controls.

Some discussion of developments post crisis here. Figure 1 below illustrates the recent deceleration in reserve accumulation.


Figure 1: Log non-advanced international reserves ex-gold, in billions $ (blue), SDR (red). Source: IMF COFER.

6 thoughts on ““For a few dollars more: Reserves and growth in times of crises”

  1. PeakTrader

    It would seem, foreign investors would be less likely to invest or require a higher return with capital controls.

  2. cosmin

    I can’t access the link from the word “online”.
    The message I get is: “Failure of server APACHE bridge:No backend server available for connection: timed out after 10 seconds or idempotent set to OFF.
    Build date/time: Apr 18 2009 12:12:59
    Change Number: 1211636 ”

    Can you please take care of the issue?

  3. Ricardo

    Does it strike anyone in the graph Menzie posted that the curve is flattening as the FED ends its monetary expansion relative to demand? Hmmmm? Could there be just a tiny correlation here, especially when we see a similar situation during the Great Depression? Bad theory leads to bad analysis.

    “The madman is not the man who has lost his reason. The madman is the man who has lost everything except his reason.” GK Chesterton

  4. Anonymous

    Hi – I was wondering, have you written a post explaining why would real interest rate differentials be more important for exchange rates than nominal. I’d guess its definitely true for countries with low credibility of their inflation target?

    1. Menzie Chinn Post author

      Anonymous: The real interest differential (Dornbusch-Frankel monetary model) attributes the importance of real interest rates to sticky prices.

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