Intro -- Contents -- I. Introduction -- II. Developments in Reserve Adequacy Indicators -- III. An Insurance Model of Optimal Reserves -- IV. A Threshold Model of Spreads-Reserves Elasticity -- V. Conclusions -- Box 1: Why Scale Reserves by Gross External Liabilities? -- Tables -- 1. Volatilities of Capital Flows in Asia-Pacific Economies -- 2. Output Loss in Asian Crisis -- 3. Interest Rate Spreads -- 4. Estimated Sterilization Financing Costs -- 5. Foreign Reserves Levels: Optimal Vs. Actual -- 6. Thresholds in the Spreads-Reserves Relations -- 7. Threshold Estimates of the Elasticity of EMBI Spreads with Respect to International Reserves Traitional Indicators -- 8. Threshold Estimates of the Elasticity of EMBI Spreads with Respect to International Reserves New Indicators -- Figures -- 1. Reserves in U.S. dollar, 1990-2007 -- 2. Reserves in percent of GDP, 1990-2007 -- 3. Reserves in months of exports of goods and services, 1990-2007 -- 4. Reserves in percent of short-term debt, 1990-2007 -- 5. Reservesin percent of gross external liabilities, 1990-2007 -- 6. Asia Emerging Markets: External Liabilities, 1990-2006 -- 7. Reserves in percent of broad money, 1990-2007 -- 8. Reserves to Financial System Deposits, Equities, and Bonds, 1990-2005 -- 9. The Optimal Level of International Reserves, 2007 -- 10. Optimal vs. Actual Levels of International Reserves in Asia -- 11. The Optimal Level of International Reserves and Traditional Reserve Adequacy Indicators -- 12. International Reserves and Threshold Estimates -- Appendix -- A.1. Variable Definitions and Sources -- A.2. Summary Statistics -- References.

Empirical analysis does not suggest that reserves are "too high" in the majority of Asian countries, though China may be a special case. Much of the reserve increase in Asia can be explained by an optimal insurance model under which reserves provide a steady source of liquidity to cushion the impact of a sudden stop in capital inflows on output and consumption. Moreover, the benefits of reserves in terms of reduced spreads on privately held external debt further explains the observed growth in reserves since 1997-98. Using threshold estimation techniques, the paper shows that most of Asia can still benefit from higher reserves in terms of reduced borrowing costs.

Description based on publisher supplied metadata and other sources.

Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2018. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.