Contingent reserves management: an applied framework

One of the most serious problems that a central bank in an emerging market economy can face is the sudden reversal of capital inflows (or sudden stops). Hoarding international reserves can be used to smooth the impact of such reversals (see, for example, Lee, 2004), but these reserves are seldom suf...

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Autores principales:	Caballero, Ricardo J., Panageas, Stavros
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	BANCOS CENTRALES DISPONIBILIDADES MONETARIAS
Acceso en línea:	https://hdl.handle.net/20.500.12580/3716
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spelling	oai-20.500.12580-37162021-04-24T10:59:24Z Contingent reserves management: an applied framework Caballero, Ricardo J. Panageas, Stavros BANCOS CENTRALES DISPONIBILIDADES MONETARIAS One of the most serious problems that a central bank in an emerging market economy can face is the sudden reversal of capital inflows (or sudden stops). Hoarding international reserves can be used to smooth the impact of such reversals (see, for example, Lee, 2004), but these reserves are seldom sufficient and always expensive to hold. In Caballero and Panageas (2005), we derive and estimate a quantitative model to assess the (noncontingent) reserve management strategy typically followed by central banks. We conclude that this strategy is clearly inferior to one in which portfolios include assets that are correlated with sudden stops. As an illustration, we show that holding contracts on the Standard and Poor’s (S&P) 100 implied volatility index (VIX) can yield a significant reduction in the average cost of sudden stops. 2019-11-01T00:03:15Z 2019-11-01T00:03:15Z 2006 Artículo 956-7421-23-4 https://hdl.handle.net/20.500.12580/3716 eng Series on Central Banking, Analysis, and Economic Policies, no. 10 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 399-420 application/pdf Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	BANCOS CENTRALES DISPONIBILIDADES MONETARIAS
spellingShingle	BANCOS CENTRALES DISPONIBILIDADES MONETARIAS Caballero, Ricardo J. Panageas, Stavros Contingent reserves management: an applied framework
description	One of the most serious problems that a central bank in an emerging market economy can face is the sudden reversal of capital inflows (or sudden stops). Hoarding international reserves can be used to smooth the impact of such reversals (see, for example, Lee, 2004), but these reserves are seldom sufficient and always expensive to hold. In Caballero and Panageas (2005), we derive and estimate a quantitative model to assess the (noncontingent) reserve management strategy typically followed by central banks. We conclude that this strategy is clearly inferior to one in which portfolios include assets that are correlated with sudden stops. As an illustration, we show that holding contracts on the Standard and Poor’s (S&P) 100 implied volatility index (VIX) can yield a significant reduction in the average cost of sudden stops.
format	Artículo
author	Caballero, Ricardo J. Panageas, Stavros
author_facet	Caballero, Ricardo J. Panageas, Stavros
author_sort	Caballero, Ricardo J.
title	Contingent reserves management: an applied framework
title_short	Contingent reserves management: an applied framework
title_full	Contingent reserves management: an applied framework
title_fullStr	Contingent reserves management: an applied framework
title_full_unstemmed	Contingent reserves management: an applied framework
title_sort	contingent reserves management: an applied framework
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3716
work_keys_str_mv	AT caballeroricardoj contingentreservesmanagementanappliedframework AT panageasstavros contingentreservesmanagementanappliedframework
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Contingent reserves management: an applied framework

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