Real exchange rate and international reserves in an era of growing financial and trade integration

Joshua Aizenman, Daniel Riera-Crichton

Research output: Contribution to journalArticlepeer-review

55 Scopus citations

Abstract

This paper evaluates the impact of international reserves, terms-of-trade shocks, and capital flows on the real exchange rate (REER). We observe that international reserves cushion the impact of terms-oftrade shocks on REER, and that this effect is important for developing but not for industrial countries. This buffer effect is especially significant for Asian countries, and for countries exporting natural resources. Financial depth reduces the buffer role of international reserves in developing countries. Developing countries' REERs seem to be more sensitive to changes in reserve assets; whereas industrial countries display a significant relationship between hot money and REER.

Original languageEnglish
Pages (from-to)812-815
Number of pages4
JournalReview of Economics and Statistics
Volume90
Issue number4
DOIs
StatePublished - 1 Nov 2008
Externally publishedYes

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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