Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5083030 | International Review of Economics & Finance | 2017 | 10 Pages |
Abstract
Using a limited-enforcement model in which a sovereign government decides jointly on external debt and foreign reserves, we quantitatively determine the optimal levels of reserves and external debt. When reserves are effective in reducing the probability of a sudden stop, the model can generate the reserves-to-debt ratio observed recently in developing countries. The optimal level of reserves is increasing in the country's fundamental vulnerability to sudden stops, the effectiveness of reserves in reducing the probability of a sudden stop, the output costs of crises, and risk aversion.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Yun Jung Kim,