IMF Working Papers
The Optimal Level of International Reserves for Emerging Market Countries : Formulas and Applicat...
We present a model of the optimal level of international reserves for a small open economy that is vulnerable to sudden stops in capital flows. Reserves allow the country to smooth domestic absorption in response to sudden stops, but yield a lower return than the interest rate on the country's long-term debt. We derive a formula for the optimal level of reserves, a...
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IMF Working Papers
The Optimal Level of International Reserves for Emerging Market Countries : Formulas and Applicat...
We present a model of the optimal level of international reserves for a small open economy that is vulnerable to sudden stops in capital flows. Reserves allow the country to smooth domestic absorption in response to sudden stops, but yield a lower return than the interest rate on the country's long-term debt. We derive a formula for the optimal level of reserves, a...
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2
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