“…From an insurance perspective, reserves can help reduce the likelihood and magnitude of abrupt drops in consumption and absorption, and consequently a loss in welfare, arising from large fluctuations in imports in the face of large external shocks. As documented by Crispolti and Tsibouris (2011), reserves appear to have cushioned countries against sharp drops in consumption and absorption for a wide range of shocks considered, including during the recent financial crisis. For instance, they find that cumulative consumption losses over a fiveyear period-measured as yearly loss relative to the pre-shock three-year trend growthwere quite substantial for past external demand and terms-of-trade shocks, at about 6-17 percentage points for countries with reserve coverage of less than three months of imports, whereas the impact was limited among those with higher coverage.…”