S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics (SJE) Seoul Journal of Economics vol.19(2) (Summer 2006)
Portfolio-Flow Volatility and Demand for International Reserves
- Issue Date
- Seoul Journal of Economics, Vol.19 No.2, pp. 199-214
- This paper examines the importance of portfolio-flow volatility as a determinant of the demand for international reserves over the 1980-99 period, Using panel data, we find that portfolio-flow volatility significantly raises the level of reserve holdings. Especially reserve accumulation is most sensitive to the volatility of portfolio balance (net flows). Capital account liberalization has increased uncertainty in the world economy, thereby making open economies more vulnerable to international financial crises. The regression results imply that monetary authorities have accumulated more precautionary reserve balances against increased uncertainty in portfolio flows as capital account liberalization progresses. As in previous studies, real openness is an important explanatory factor in determining the demand for reserves.