Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96377
Authors: 
Steiner, Andreas
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Institute of Empirical Economic Research, University of Osnabrück 97
Abstract: 
Central banks invest their foreign exchange reserves predominantly in government bonds. The global accumulation of reserves therefore affects the equilibrium in the market for government bonds of reserve currency countries. By means of a panel data analysis we examine the relationship between reserve currency status and public budget balance during different constellations of the international monetary system: the sterling period (1890-1935) and the dollar dominance (since World War II). We show for both periods that reserve currency status significantly lowers the fiscal balance. Any additional dollar of reserves lowers the center's balance by 0.7-1.4 dollars. These novel findings show that reserve currency status increases sovereign debt of the center country.
Subjects: 
Reserve Currency
Public Balance
International Monetary System
Panel Data Analysis
JEL: 
F31
F33
F41
H62
E62
C23
Document Type: 
Working Paper

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