Capital Inflows and Reserve Accumulation: The Recent Evidence

25 Pages Posted: 10 Mar 2008 Last revised: 31 Mar 2008

See all articles by Carmen M. Reinhart

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Vincent R. Reinhart

American Enterprise Institute (AEI)

Date Written: March 2008

Abstract

Over the past decade, policymakers in many emerging market economies have opted to limit fluctuations of the value of their domestic currencies relative to the U.S. dollar. A simple interest-parity relationship is used to identify the potential sources of upward pressure on the value of a foreign exchange rate and to explain the policy options to damp them. The paper then documents the extent to which the accumulation of foreign exchange reserves has been sterilized and provides a comprehensive list of major policy initiatives related to stemming forces that would otherwise appreciate the exchange rate in over one hundred countries. This examination of policy efforts shows that a wide variety of tools are used in the attempt to stem the tide of capital flows.

Suggested Citation

Reinhart, Carmen M. and Reinhart, Vincent R., Capital Inflows and Reserve Accumulation: The Recent Evidence (March 2008). NBER Working Paper No. w13842. Available at SSRN: https://ssrn.com/abstract=1104179

Carmen M. Reinhart (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vincent R. Reinhart

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

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