The Optimal Level of International Reserves for Emerging Market Countries: A New Formula and Some Applications

46 Pages Posted: 11 Jun 2008

See all articles by Olivier Jeanne

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

Romain G. Rancière

University of Southern California

Date Written: February 2008

Abstract

We present a model of the optimal level of international reserves for a small open economy seeking insurance against sudden stops in capital flows. We derive a formula for the optimal level of reserves, and show that plausible calibrations can explain reserves of the order of magnitude observed in many emerging market countries. However, the recent build-up of reserves in emerging market Asia seems in excess of what would be implied by an insurance motive against sudden stops.

Keywords: balance-of-payments crises, International Reserves, Sudden Stops

JEL Classification: F32

Suggested Citation

Jeanne, Olivier and Rancière, Romain G., The Optimal Level of International Reserves for Emerging Market Countries: A New Formula and Some Applications (February 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1141629

Olivier Jeanne (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Room 10-548L
Washington, DC 20431
United States
202-623-4272 (Phone)
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Ecole Nationale des Ponts et Chaussees (ENPC) ( email )

28 rue des Saints-Pres
75007 Paris
France
+33 1 44 58 28 76 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Romain G. Rancière

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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