Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264330 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. WP 2022-16
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
We propose a macroprudential theory of foreign reserve accumulation that can rationalize the secular trends in public and private international capital flows. In middle-income countries, the increase in international reserves has been associated with elevated private capital inflows, both in the aggregate and in the cross-section, and reserve holdings have been more prominent in economies with a more open capital account. We present an open economy model of financial crises that is consistent with these features. We show that the optimal reserve accumulation policy leans against the wind, raising gross private borrowing while improving the economy's net foreign asset position and reducing the exposure to financial crises.
Subjects: 
Macroprudential policy
international reserves
financial crises
gross capital flows
JEL: 
E58
F31
F32
F34
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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