Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/66499
Authors: 
Steiner, Andreas
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Institute of Empirical Economic Research, University of Osnabrück 85
Abstract: 
Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially detrimental effects of sudden stops of capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in the level of reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a fear of capital mobility suffered by central banks.
Subjects: 
international reserves
capital mobility
macroeconomic trilemma
JEL: 
E58
F31
Document Type: 
Working Paper

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