Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia

Shrestha, Prakash Kumar

doi:10.3126/nrber.v28i1.52538

Cited by 4 publications

(1 citation statement)

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“…25.2.2023.19 accumulate foreign exchange reserves in the economy. On the other hand, strong economic growth follows the accumulation of foreign exchange reserves to create resilience to external shocks (Shrestha, 2016). In recent decades, foreign reserves have increased in many developing countries.…”

Section: Introductionmentioning

confidence: 99%

Relationship between Foreign Exchange Reserves and Economic Growth in Tanzania: Application of Wald Granger-Causality Test

Jacob,

Magungu

2024

RPJ

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The study investigates the causal relationship between foreign exchange reserves and economic growth in Tanzania from 1990-2021. The study employed the Wald Granger-Causality Test to examine the causal relationship between variables. The results from the Wald Granger-Causality- Test revealed the unidirectional causal effect of economic growth on foreign exchange reserves. This implies that the value of economic growth can be used to predict the future value of foreign exchange reserves in Tanzania in the short and long run. In contrast, foreign exchange reserves cannot be used to predict the economic growth movement. Furthermore, findings indicated that foreign exchange reserves positively affect economic growth in the long run, implying that increasing foreign exchange reserves increases financial growth. Due to these findings, it can be concluded that foreign exchange reserves act as an integral catalyst for sustainable development in a country. Improving monetary policies and reserve management strategies would strike a balance between holding reserves and managing external debt. While reserves can be used to service debt and enhance creditworthiness, excessive reliance on reserves for debt servicing may deplete the buffer needed for crisis management. Policymakers must consider the country's specific circumstances and continually assess and adapt strategies to promote sustainable economic growth.

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Section: Introductionmentioning

confidence: 99%

Relationship between Foreign Exchange Reserves and Economic Growth in Tanzania: Application of Wald Granger-Causality Test

Jacob,

Magungu

2024

RPJ

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Macroeconomic determinants of the demand for international reserves in Bangladesh

Islam

2021

SN Bus Econ

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Recent financial crises have heightened the demand from emerging markets' and developing countries' central banks for international reserves that can meet their emergency foreign currency liquidity needs at times of halts in capital flow. The necessity of reserves for weathering external shocks is well documented in the literature. Likewise, macroeconomic factors to determine the level of reserves have been central to many empirical studies. Motivated by Bangladesh's stance in regard to reserve accumulation, we aim to investigate the macroeconomic determinants of the demand for international reserves in the country using quarterly data ranging from 1994Q2 to 2016Q4. We also examine the role of disequilibrium in the national money market in reserve movements during the same period. In addition, we check for a structural break associated with the exchange rate regime change in the reserves demand function. The Johansen cointegration test of reserve demand function reveals that the current account vulnerability and exchange rate flexibility play a crucial role in Bangladesh's long-term reserve demand policies. However, reserves appear to be insensitive to economic size and opportunity cost. A single equation error correction estimate suggests that the monetary disequilibrium does not play a significant role in the short-term reserve movements. More importantly, a dynamic ordinary least-squares estimate suggests that switching to the flexible exchange rate regime in 2003 contributes to a structural change in the long-term reserve demand policies of Bangladesh. Since the empirical results suggest that Bangladesh's reserve holding behavior is primarily driven by the precautionary motive, we propose that the country should continue to focus on increasing its reserve stock in relation to the current account vulnerability. Keywords International reserves • Average propensity of import • Monetary approach to the balance of payments • Monetary disequilibrium

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Impact of hurricanes strikes on international reserves in the Caribbean

Strobl

Ouattara

Kablan³

2020

Applied Economics

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Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia

Cited by 4 publications

References 51 publications

Relationship between Foreign Exchange Reserves and Economic Growth in Tanzania: Application of Wald Granger-Causality Test

Relationship between Foreign Exchange Reserves and Economic Growth in Tanzania: Application of Wald Granger-Causality Test

Macroeconomic determinants of the demand for international reserves in Bangladesh

Impact of hurricanes strikes on international reserves in the Caribbean

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