Skip to main content

Currency crises: can high reserves offset vulnerable fundamentals?

Buy Article:

$55.00 plus tax (Refund Policy)

Abstract:

First generation crisis models suggest that the size of international reserves affects only the timing of a crisis while second generation models imply that higher reserves can reduce the probability of a crisis. First in the literature, this article suggests the ‘rolling probit model’ to successfully demonstrate that high reserves can be effective in offsetting vulnerable fundamentals in a vulnerable zone. The more vulnerable fundamentals in the vulnerable zone require higher levels of international reserves to reduce the probability of a crisis. If the fundamentals are sufficiently bad, the level of needed reserves may be explosive, which makes a crisis unavoidable. Unlike the arbitrary proposals of reserve adequacy measures in current literature, this article also sheds light on such measures based on the relationship between vulnerable fundamentals and high reserves.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036840902984399

Affiliations: 1: CAFD,Central University of Finance and Economics, Beijing, China 2: China Academy of Public Finance and Public Policy,Central University of Finance and Economics, Beijing, China

Publication date: 2011-06-01

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
X
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more