Template-Type: ReDIF-Article 1.0

Author-Name: Csávás Csaba
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: csavascs@mnb.hu
Author-Person: pcs7

Author-Name: Csom-Bíró Gabriella
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: birog@mnb.hu


Title: Indicators Used for the Assessment of
the Reserve Adequacy of Emerging
and Developing Countries – International
Trends in the Mirror of Theories

Abstract: The paper examines to what extent usage of the foreign currency reserve adequacy
indicators applied by the International Monetary Fund (IMF) and investment
banks can be mapped with those recommended in the academic literature. The
theoretically relevant indicators differ substantially depending on the given country’s
(1) development, (2) freedom of capital movement, and (3) exchange rate regime.
In order to examine the question, the authors compiled a broad database, covering
more than 100 countries, based on the IMF’s regular country reports. According
to the results of the study, the IMF tends to use the short-term external debt and
monetary aggregate indicators more often with the increase in income, while the
role of the import rule gradually decreases as a function of income. There is a
positive relation between the import rule and use of capital controls, while it is the
other way round in the case of short-term external debt and the monetary aggregate
indicators. For countries with a fixed exchange rate regime, the monetary aggregate
and import indicators are used more often than for those with a floating exchange
rate regime, while the use of short-term external debt is less frequent. The reserve
indicators used for various combinations of country characteristics show groupspecific
features rather than being a simple aggregation of the indicators used for
the individual country characteristics. The authors examined separately the group
of countries of similar development level and exchange rate regime as Hungary,
which do not apply capital controls, as well as the non-euro area region of the EU,
where in its country reports the IMF assesses the reserve adequacy based on the
self-elaborated composite metric – which attaches a high weight to short-term
debt – on the one hand, and based on short-term external debt, on the other hand.

Classification-JEL: E58, F31, F41
Keywords: foreign exchange reserves, reserve indicator, capital control, exchange
rate regime, country report
Pages: 5–45
Volume: 16
Issue: 1
Year: 2017
File-URL: http://english.hitelintezetiszemle.hu/letoltes/csaba-csavas-gabriella-csom-biro.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:16:y:2017:i:1:p:73-100