European Parliament Library

Accounting for Reserves, Tamim Bayoumi, Christian Saborowski

Views on the effectiveness of sterilized reserve intervention vary. Sterilized intervention is generally seen as ineffective in advanced countries while persistent intervention by some emerging markets is often cited as contributing to undervalued exchange rates and current account surpluses. This paper argues that capital controls reconcile these views. We find strong and highly robust evidence that sterilized intervention is fully offset by outflows of private money in countries without controls, while controls partially block this offset. For a country with extensive capital controls, every dollar in additional reserves increases the current account by some 50 cents. This is mainly offset by an opposite adjustment in the current account of the United States—the dominant reserve currency issuer with the deepest and most liquid bond markets—with a smaller diversion to other emerging markets
Table Of Contents
Cover; Contents; I. Introduction; II. Specification; III. Data and Variable definitions; IV. Estimation results; A. The average effect of intervention on current accounts in has fallen side by side with the trend towards more open capital accounts; B. In open economies reserve accumulation is a powerless policy tool while closed economies improve their current accounts by 50 cents for every dollar spent; C. The exorbitant privilege awarded to the United States is the main offset from global reserve accumulation but there also seems to be diversion to open emerging markets
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (38 p.)
Specific Material Designation
Form Of Item

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