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American Economic Journal: Macroeconomics: Vol. 2 No. 2 (April 2010)
AEJ: Macro Volume. 2, Issue 2 | 
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AEJ: Macro Forthcoming Articles
Financial Stability, the Trilemma, and International Reserves
Article Citation
Obstfeld, Maurice,
Jay C. Shambaugh, and
Alan M. Taylor. 2010. "Financial Stability, the Trilemma, and International Reserves."
American Economic Journal: Macroeconomics,
2(2): 57-94.
DOI: 10.1257/mac.2.2.57
DOI: 10.1257/mac.2.2.57
Abstract
The rapid growth of international reserves, a development concentrated
in the emerging markets, remains a puzzle. In this paper, we
suggest that a model based on financial stability and financial openness
goes far toward explaining reserve holdings in the modern era
of globalized capital markets. The size of domestic financial liabilities
that could potentially be converted into foreign currency (M2),
financial openness, the ability to access foreign currency through
debt markets, and exchange rate policy are all significant predictors
of reserve stocks. Our empirical financial-stability model seems to
outperform both traditional models and recent explanations based
on external short-term debt. (JEL E23, E43, E44, F31, F32, F34)
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Authors
Obstfeld, Maurice (U CA, Berkeley)
Shambaugh, Jay C. (Dartmouth College)
Taylor, Alan M. (U CA, Davis)
Shambaugh, Jay C. (Dartmouth College)
Taylor, Alan M. (U CA, Davis)
JEL Classifications
E23: Macroeconomics: Production
E43: Interest Rates: Determination, Term Structure, and Effects
E44: Financial Markets and the Macroeconomy
F31: Foreign Exchange
F32: Current Account Adjustment; Short-term Capital Movements
F34: International Lending and Debt Problems
E43: Interest Rates: Determination, Term Structure, and Effects
E44: Financial Markets and the Macroeconomy
F31: Foreign Exchange
F32: Current Account Adjustment; Short-term Capital Movements
F34: International Lending and Debt Problems
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