Reserve accumulation and financial crises: From individual protection to systemic risk

DC FieldValueLanguage
dc.contributor.authorSteiner, Andreas
dc.date.accessioned2021-12-23T15:59:13Z-
dc.date.available2021-12-23T15:59:13Z-
dc.date.issued2014
dc.identifier.issn00142921
dc.identifier.urihttps://osnascholar.ub.uni-osnabrueck.de/handle/unios/3798-
dc.description.abstractThis paper provides a new perspective on the relationship between countries' international reserve holdings and financial crises: while the ``local'' view holds that reserves may prevent domestic crises, it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre, which is transmitted globally. According to this ``global'' view reserve accumulation might destabilize the international financial system. Since the crisis affects all countries alike, the accumulation of reserves imposes a negative externality on non-accumulating countries. We integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality: the consideration of systemic risk lowers the demand for reserves. Moreover, if a supranational authority determines the optimal level of reserves, it internalizes the negative externality and accumulates fewer reserves. A macroprudential tax on reserve hoardings might implement the socially optimal solution. Our calibration analysis shows that these considerations are economically significant: they lower the optimal amount of reserves in the benchmark case by 45%. (C) 2014 Elsevier B.V. All rights reserved.
dc.language.isoen
dc.publisherELSEVIER
dc.relation.ispartofEUROPEAN ECONOMIC REVIEW
dc.subjectBusiness & Economics
dc.subjectCURRENCY CRISES
dc.subjectEconomics
dc.subjectEXCHANGE-RATE
dc.subjectFinancial crises
dc.subjectGlobal imbalances
dc.subjectINTERNATIONAL RESERVES
dc.subjectMacro-prudential policies
dc.subjectMATURITY
dc.subjectMODELS
dc.subjectMONEY
dc.subjectSHORT-TERM DEBT
dc.subjectSystemic risk
dc.subjectVULNERABILITY
dc.subjectWORLD
dc.titleReserve accumulation and financial crises: From individual protection to systemic risk
dc.typejournal article
dc.identifier.doi10.1016/j.euroecorev.2014.04.005
dc.identifier.isiISI:000342266300008
dc.description.volume70
dc.description.startpage126
dc.description.endpage144
dc.contributor.orcid0000-0001-9272-3262
dc.identifier.eissn1873572X
dc.publisher.placeRADARWEG 29, 1043 NX AMSTERDAM, NETHERLANDS
dcterms.isPartOf.abbreviationEur. Econ. Rev.
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