How Much Should I Hold? Reserve Adequacy in Emerging Markets and Small Islands

45 Pages Posted: 1 Nov 2012

See all articles by Nkunde Mwase

Nkunde Mwase

International Monetary Fund (IMF)

Date Written: August 2012


This paper investigates the drivers of reserves in emerging markets (EMs) and small island (SIs) and develops an operational metric for estimating reserves in SIs taking into account their unique characteristics. It uses quantile regression techniques to allow the estimated factors driving reserves holdings to vary along the reserves’ holding distribution and tests for equality among the slope coefficients of the various quantile regressions and the overall models. F-tests comparing the inter-quantile differences could not reject the null that the models for the different quantiles of SIs reserve distribution were similar but this was rejected for EMs distribution suggesting that models explaining drivers of reserve holdings should take into account the country’s reserve holdings. Empirical analysis suggests that the metric performs better than existing metrics in reducing crisis probabilities in SIs.

Keywords: Logit and Quantile Regression, Islands, Emerging Markets, EMP, and Deleveraging, Economic Models, Reserves Accumulation, Reserves Adequacy, Small States, Econometric Methods: - Multiple/Simultaneous Equation Models

JEL Classification: F31, F32, F37, F41, O57

Suggested Citation

Mwase, Nkunde, How Much Should I Hold? Reserve Adequacy in Emerging Markets and Small Islands (August 2012). IMF Working Paper No. 12/205, Available at SSRN:

Nkunde Mwase (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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