Document Type
Article
Publication Date
2-21-2017
Abstract
In this paper we study the relationship between foreign currency international reserve holdings and global interest rates. To guide empirical work we solve a simple, small open-economy model with money, where the central bank manages international reserves to smooth inflation over time. This model shows that changes in interest rates are positively related to the target level of reserves. As a consequence interest rate hikes increase reserve transfers, defined as the change in international reserves net of the interest earned on reserves. Using quarterly data for 75 countries between 2000 and 2013, we document a positive relationship between interest-rate changes and reserve transfers as a share of GDP, that is consistent with the model.
Recommended Citation
Pina, G. (2017). International reserves and global interest rates. Journal of International Money and Finance, 74(Supplement C), 371–385.
Comments
© 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.
Final version of this paper can be found here - https://doi.org/10.1016/j.jimonfin.2017.02.026.