How Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes
31 Pages Posted: 20 Oct 2020
Date Written: 2020
We evaluate the change in international reserves in the aftermath of significant external shocks. We examine the response of international reserves to shocks by using a quasi-experimental setup and focusing on earthquakes. The estimation is done on a panel of 103 countries over the period 1979–2016. We find that in the five years following a large earthquake (i) countries exposed accumulate reserves, for precautionary reasons, (ii) trade openness is positively associated with the post-earthquake reserves accumulation, (iii) episodes of reserves depletion are observed in countries under the fixed exchange rate and/or inflation targeting regimes, and (iv) the patterns of reserves holding post-earthquake vary with a country’s income level.
Keywords: disasters, earthquakes, international reserves, foreign exchange holding
JEL Classification: F310, F410, Q540
Suggested Citation: Suggested Citation