International Reserve Adequacy in the Gambia

17 Pages Posted: 1 Feb 2011

Date Written: September 2010

Abstract

This paper applies intertemporal models of precautionary saving to compute an optimal level of international reserves for The Gambia. The analysis focuses on current account shocks specific to a low-income economy with a significant import component and complements a more standard, rule-of-thumb reserve adequacy assessment. The results suggest a central range from 4.5 months to 7 months of imports, which is broadly aligned with the recent actual coverage. Notwithstanding parameter sensitivity, the simulations allow for more informed policy decisions that balance flexibility with a prudent approach to reserve use.

Keywords: Balance of payments, Economic models, Fiscal risk, Foreign exchange reserves, Gambia, The, Reserves, Reserves adequacy, Risk management, Savings

Suggested Citation

Tereanu, Eugen, International Reserve Adequacy in the Gambia (September 2010). IMF Working Paper No. 10/215, Available at SSRN: https://ssrn.com/abstract=1750703

Eugen Tereanu (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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