Endowed Chairs
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Joshua AizenmanDaniel Riera-Crichton
11-01-2008
This paper evaluates the impact of international reserves, terms-of-trade shocks, and capital flows on the real exchange rate (REER). We observe that international reserves cushion the impact of terms..
This paper evaluates the impact of international reserves, terms-of-trade shocks, and capital flows on the real exchange rate (REER). We observe that international reserves cushion the impact of terms-oftrade shocks on REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. Financial depth reduces the buffer role of international reserves in developing countries. Developing countries' REERs seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER. © 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
http://scarab.bates.edu/faculty_publications/439
Economics
Review of Economics and Statistics