Central Bank reserve creation in the era of negative money multipliers

Manmohan Singh, Peter Stella 07 May 2012

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The phenomenal increase in bank reserves that has resulted from central bank responses to the current financial crisis has led to considerable anxiety regarding a potentially explosive and uncontrollable future increase in inflation. Virtually identical concerns within the Federal Reserve in late 1935 motivated large increases in reserve requirements during 1936 and 1937; actions widely regarded as contributing to the sharp 1937-8 recession (see Friedman and Schwartz 1963).

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Topics:  Macroeconomic policy

Tags:  monetary policy, Central Banks, reserves, money multiplier

Central banks and gold puzzles

Joshua Aizenman, Kenta Inoue 19 March 2012

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On 7 August 2009, the European Central Bank released the following Joint Statement on Gold:

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Topics:  International finance

Tags:  Central Banks, reserves, Gold

The dollar question: Where are we?

Kati Suominen 09 July 2010

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The global crisis and US economic travails triggered a firestorm debate on the future of the global currency regime.

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Topics:  Global governance International finance

Tags:  dollar, reserves, global currency regime

Reserves and other early warning indicators work in crisis after all

Jeffrey Frankel, George Saravelos 01 July 2010

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With aftershocks of the recent global financial earthquake still being felt in some parts of the world, it would be useful to have a set of “early warning indicators” to tell us what countries are most vulnerable. Many scholarly papers in the past have been devoted to identifying leading indicators of crises (e.g. Rose and Spiegel 2009a).

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Topics:  Global crisis

Tags:  reserves, global crisis, early warning

Hedging against commodity prices and precautionary reserves

Eduardo Borensztein, Olivier Jeanne, Damiano Sandri 15 December 2009

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The build-up of global imbalances has been driven in part by emerging market economies’ accumulation of large stocks of reserves – a trend that some authors view as self-insurance against volatility in international capital flows (Aizenman 2009, Aizenman and Sun 2009).1 Consistent with this view, Managing Director Dominique Strauss-Kahn recently declared that the IMF had the potential to contribute to the resolution o

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Topics:  International finance

Tags:  global imbalances, reserves, commodity, hedging

Alternatives to sizeable hoarding of international reserves: Lessons from the global liquidity crisis

Joshua Aizenman 30 November 2009

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The spectacular increase in hoarding of international reserves (IR) by emerging markets, in the aftermath of the East Asian crisis, has been one of the defining features of global imbalances (Summers 2006). This accumulation reflects, among other factors, the self insurance provided by international reserves against sudden stops and deleveraging crises (Aizenman and Lee 2007).

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Topics:  International finance

Tags:  reserves, East Asia, sudden-stops

International reserve losses in the 2008-9 crisis: From “fear of floating” to the “fear of losing international reserves”?

Joshua Aizenman, Yi Sun 15 October 2009

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Investigating the patterns of exchange rates, interest rates, and international reserves during 1970-1999, Calvo and Reinhart (2002) inferred the prevalence of the “fear of floating”. Countries that say they allow their exchange rate to float mostly do not. Instead, frequently the authorities are attempting to stabilise the exchange rate through direct intervention in the foreign exchange market and in open market operations.

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Topics:  International finance

Tags:  reserves, international reserves, fear of floating, global crisis

Rapid and large liquidity funding for emerging markets

Guillermo Calvo, Rudy Loo-Kung 10 December 2008

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One can blame the G7 for incompetent financial supervision, but few would criticise them for the rapid and decisive action taken by their central banks and fiscal authorities after the crisis materialised.

It is too early to tell if the G7 are coming out of the quagmire any time soon, but it is clear that the G7 have a powerful arsenal. The world is eager to buy their public bonds at negligible interest rates, which they can then use to pump in liquidity and bail out their financial sectors.

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Topics:  International finance

Tags:  financial crisis, emerging markets, reserves

Asian exchange rate asymmetry

Victor Pontines, Ramkishen S. Rajan 19 November 2008

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Following Calvo and Reinhart (2002), it has become commonplace to argue that there is a “fear of floating” among emerging economies in Asia and elsewhere. However, the sustained reserve build-up in emerging Asian economies since 2000 until 2008 (with the onset of the global financial crisis) suggests that they are more sensitive to exchange rate appreciation than depreciation.

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Topics:  Exchange rates Macroeconomic policy

Tags:  sovereign wealth funds, reserves, Asia, fear of floating

The IMF as a reserve manager

Michael Bordo, Harold James 18 June 2008

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In the original conception of the 1944 Bretton Woods Conference, the International Monetary Fund (IMF) was created to deal with problems that had afflicted the interwar world, particularly the lopsided distribution of reserves and the deflationary consequences for the international economy – as well as with crisis management. Today the IMF has been almost completely sidelined from many of the major governance issues of the international financial system. In particular, it is much less active as a financial institution.

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Topics:  International finance

Tags:  IMF, reserves, crisis management

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