nep-cba New Economics Papers
on Central Banking
Issue of 2023‒07‒24
twenty-two papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. The monetary and macroprudential policy framework in Colombia in the last 30 years: the lessons learnt and the challenges for the future By Gomez-Pineda, Javier Guillermo; Murcia, Andrés; Cabrera-Rodríguez, Wilmar Alexander; Vargas-Herrera, Hernando; Villar-Gómez, Leonardo
  2. Central Bank Communication and Social Media: From Silence to Twitter By Donato Masciandaro; Oana Peia; Davide Romelli
  3. How Elastic and Predictable Money Should Be: Flexible Monetary Policy Rules from the Great Moderation to the New Normal Times (1993-2023) By Donato Masciandaro
  4. Monetary and Macroprudential Policy and Welfare in an Estimated Four-Agent New Keynesian Model By George J. Bratsiotis; Kasun D. Pathirage
  5. Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment By Dräger, Lena; Nghiem, Giang
  6. On the Nexus of Monetary Policy and Financial Stability: Novel Asset Market Monitoring Tools for Building Economic Resilience and Mitigating Financial Risks By Lauren Spits; Valerie Grossman; Enrique Martinez-Garcia
  7. Learning Monetary Policy Strategies at the Effective Lower Bound with Sudden Surprises By Spencer D. Krane; Leonardo Melosi; Matthias Rottner
  8. Money Matters: Broad Divisia Money and the Recovery of Nominal GDP from the COVID-19 Recession By Michael D. Bordo; John V. Duca
  9. Overborrowing, Underborrowing, and Macroprudential Policy By Fernando Arce; Julien Bengui; Javier Bianchi
  10. Monetary Policy Operations: Theory, Evidence, and Tools for Quantitative Analysis By Ricardo Lagos; Gastón Navarro
  11. The transmission of macroprudential policy in the tails: evidence from a narrative approach By Fernández-Gallardo, Álvaro; Lloyd, Simon; Manuel, Ed
  12. The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns By Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
  13. Janus's Money Demand and Time Inconsistency: A New Impossibility Theorem? By João Ricardo Faria; Peter McAdam
  14. Global Liquidity: Drivers, Volatility and Toolkits By Linda S. Goldberg
  15. Self-fulfilling fire sales and market backstops By Kalsi, Harkeerit; Vause, Nicholas; Wegner, Nora
  16. The potential impact of broader central clearing on dealer balance sheet capacity: a case study of UK gilt and gilt repo markets By Baranova, Yuliya; Holbrook, Eleanor; MacDonald, David; Rawstorne, William; Vause, Nicholas; Waddington, Georgia
  17. How Heterogeneous Beliefs Trigger Financial Crises By Florian Schuster; Marco Wysietzki; Jonas Zdrzalek
  18. What do politicians think of technocratic institutions? Experimental Evidence on the European Central Bank By Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
  19. Distressed Firms and the Large Effects of Monetary Policy Tightenings By Ander Pérez-Orive; Yannick Timmer
  20. What Can Earnings Calls Tell Us About the Output Gap and Inflation in Canada? By Marc-André Gosselin; Temel Taskin
  21. Monetary Policy, Distribution and Autonomous Demand in the US By Maria Cristina Barbieri Goes; Joana David Avritzer
  22. International Reserve Accumulation: Balancing Private Inflows with Public Outflows By Bada Han; Dongwook Kim; Youngjin Yun

  1. By: Gomez-Pineda, Javier Guillermo; Murcia, Andrés; Cabrera-Rodríguez, Wilmar Alexander; Vargas-Herrera, Hernando; Villar-Gómez, Leonardo
    Abstract: Over the past 30 years, monetary and macroprudential policy in Colombia evolved towards the pursuit of a low and credible inflation target and a stable financial system. The protracted inflation that began in the early seventies was defeated at the turn of the century with the help of the new framework for monetary policy formulation, inflation targeting. In the field of macroprudential policy, the financial crisis of the late nineties led to important institutional developments in the formulation and coordination of macroprudential policy, as well as in the assessment of systemic risk. Along with these developments, important lessons have been learnt. One is that, to preserve macroeconomic stability, the price stability objective must be complemented with the financial stability objective, as well as with macroprudential policy. Another lesson is that the new institutional framework for monetary policy formulation helped Banco de la República overcome 25 years of inflation, then called moderate inflation. The challenges for the future include to continue preserving price and financial stability, strengthening the role of the Banco de la República in macroprudential policy, and to continue strengthening the channels of international coordination and cooperation in macroprudential policy.
    Keywords: Monetary policy; Macroprudential policy; Inflation targeting; Foreign exchange market intervention; Financial stability
    JEL: E58 E5 E52 E44 E61 G01 G18 G21 G28
    Date: 2023–07
  2. By: Donato Masciandaro; Oana Peia; Davide Romelli
    Abstract: This paper discusses the evolution of central bank communication, focusing on recent efforts by central banks to engage with a wider audience via social media. We document the social media presence of major central banks and discuss how analyzing Twitter content by and about monetary policy makers can inform about the effectiveness of communication in influencing beliefs. We focus on recent techniques employed in analyzing social media content in order to understand how central bank communication affects expectations and, subsequently, behavior in financial markets.
    Keywords: central bank communication, monetary policy, expectations, transparency, text analysis, social media, Twitter.
    JEL: E44 E52 E58 G14 G15 G41
    Date: 2022
  3. By: Donato Masciandaro
    Abstract: The never ending debate on the optimal money elasticity and predictability, coupled with the recent wishes of the major central banks to normalize monetary policy, as well as to revise their best practices, motivate this paper. Its aim is to offer a review of the evolution of the modern concept of flexible monetary policy rules, from the seminal contribute of Taylor (1993) to nowadays. Four subsequent steps are implemented: after an excursus on the traditional rules versus discretion debate, the origin of the flexible rules is described, and then its evolution; finally, the opportunity to consider as a promising research perspective the role of the central bankers’ heterogeneity – in terms of personal preferences, including the behavioural biases – is highlighted. The more it is likely that psychology matters, the more a new motivation arises for a central bank to adopt a flexible rule.
    Keywords: monetary policy, flexible rules, central bank governance, central banker conservatism, behavioural economics, Sweden, New Zealand
    JEL: E50 E52 E58
    Date: 2023
  4. By: George J. Bratsiotis; Kasun D. Pathirage
    Abstract: We examine the social and agent-specific welfare effects of monetary and macroprudential policy in a four-agent estimated macroeconomic model, consisting of 'banked simple households', 'underbanked simple households', 'firm owners', and 'bank owners'. Optimal capital requirement and loan loss provisions ratios, are shown to improve all agent-specific and social welfare, but imply smaller gains for simple households and firm owners that rely on credit. Countercyclical capital buffers support firm owners and bank owners, with smaller gains for the two simple households. Countercyclical loan loss provisions improve social welfare only for specific shocks and benefit the 'simple underbanked household' and 'firm-owners' at the expense of 'bank-owners' and 'banked simple households'. Coordination between monetary and macroprudential policies yields higher social welfare than no coordination.
    Keywords: monetary policy; macroprudential policy; financial frictions; risk of default; welfare
    JEL: E31 E32 E44 E52 E58 G28
    Date: 2023–06
  5. By: Dräger, Lena; Nghiem, Giang
    Abstract: This paper studies the causal effect of inflation literacy on inflation expectations and trust in the central bank using a randomized control trial (RCT) on a representative sample of the German population. In an experiment with two steps, we first test the effect of non-numerical information about inflation and monetary policy, the \textitliteracy treatment. In the second step, we randomly treat respondents with quantitative information and measure whether those who previously received the \textitliteracy treatment, incorporate quantitative information differently into their inflation forecasts. We find that the \textitliteracy treatment improves respondents' knowledge about monetary policy and inflation and raises their trust in the central bank. It also causes a higher likelihood that respondents provide inflation predictions, but does not affect the level of expected inflation. Similarly, those who received the initial \textitliteracy treatment do not react differently to the quantitative information in terms of the level of their inflation forecasts, but they react more strongly to some treatments regarding their reported forecast uncertainty and trust in the central bank.
    Keywords: Inflation literacy; inflation expectations; trust in the central bank; survey experiment; randomized control trial (RCT)
    JEL: E52 E31 D84
    Date: 2023–06
  6. By: Lauren Spits; Valerie Grossman; Enrique Martinez-Garcia
    Abstract: In this note we argue that asset pricing bubbles are an important source of financial instabilities. First, the literature has tended to overlook bubbles and their consequences under the premise that they are hard to detect in real time. We suggest that novel statistical techniques allow us to overcome those prejudices as they provide valuable signals of emerging exuberance in real‐time. Second, monetary policy has been slow to recognize that financial instability arising from bubbles can have adverse effects on the transmission mechanism of monetary policy itself and on the types of risks faced by policymakers. We argue that measuring and monitoring episodes of exuberance in housing—but also in other asset classes—can be useful not just for thinking about macroprudential strategies but also to conduct risk analysis for monetary policy.
    Keywords: monetary policy; real estate; banking; finance; COVID-19; financial stability
    JEL: D84 E52 E58 E61 G10 R31 R21
    Date: 2023–06–02
  7. By: Spencer D. Krane; Leonardo Melosi; Matthias Rottner
    Abstract: Central banks around the world have revised their operating frameworks in an attempt to counter the challenges presented by the effective lower bound (ELB) on policy rates. We examine how private sector agents might learn such a new regime and the effect of future shocks on that process. In our model agents use Bayesian updating to learn the parameters of an asymmetric average inflation targeting rule that is adopted while at the ELB. Little can be discovered until the economy improves enough that rates would be near liftoff under the old policy regime; learning then proceeds until either the new parameters are learned or the average inflation target is reached. Recessionary shocks forcing a return to the ELB would thus delay learning while large inflationary shocks could outright stop it and so inhibit the ability of the new rule to address future ELB episodes. We show the central bank can offset some of the inflation-induced learning loss by deviating from its new rule, but it must weigh the benefits of doing so against the costs of higher near-term inflation and greater uncertainty about the policy function.
    Keywords: new framework; central bank's communications; Deflationary Bias; asymmetric average inflation targeting; imperfect credibility; liftoff; Bayesian Learning
    JEL: E52 C63 E31
    Date: 2023–06–07
  8. By: Michael D. Bordo; John V. Duca
    Abstract: The rise of inflation in 2021 and 2022 surprised many macroeconomists who ignored the earlier surge in money growth because past instability in the demand for simple-sum monetary aggregates had made these aggregates unreliable indicators. We find that the demand for more theoretically-based divisia aggregates can be modeled and that their growth rates provide useful information for future nominal GDP growth. Unlike M2 and divisia-M2, whose velocities do not internalize shifts in liabilities across commercial and shadow banks, the velocities of broader Divisia monetary aggregates are more stable and can be reasonably empirically modeled in both the short run and the long run through the Covid-19 pandemic and to date. In the long run, these velocities depend on regulatory changes and mutual fund costs that affect the substitutability of money for other financial assets. In the short run, we control for swings in mortgage activity and use vaccination rates and an index of the stringency of government pandemic restrictions to control for the unusual effects of the pandemic. The velocity of broad Divisia money temporarily declines during crises like the Great and COVID Recessions, but later rebounds. In each recession monetary policy lowered short-term interest rates to zero and engaged in quantitative easing of about $4 Trillion. Nevertheless, broad money growth was more robust in the COVID Recession, likely reflecting that the banking system was less impaired and could promote rather than hinder multiple deposit creation. Partly as a result, our framework implies that nominal GDP growth and inflationary pressures rebounded much more quickly from the COVID Recession versus the Great Recession. We consider different scenarios for future Divisa money growth and the unwinding of the pandemic that have different implications for medium-term nominal GDP growth and inflationary pressures as monetary policy tightening seeks to restore low inflation.
    JEL: E41 E51 E52 E58
    Date: 2023–06
  9. By: Fernando Arce; Julien Bengui; Javier Bianchi
    Abstract: In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production structure and the policy instruments available to the planner. We argue that macroprudential policy is desirable regardless of whether the competitive equilibrium features more or less borrowing than the constrained-efficient equilibrium. In our quantitative analysis, macroprudential taxes on borrowing turn out to be larger when the government has access to ex-post stabilization policies.
    Keywords: Macroprudential Policy; Over-borrowing; Under-borrowing
    JEL: E58 F31 F32 F34
    Date: 2023–05
  10. By: Ricardo Lagos; Gastón Navarro
    Abstract: We formulate a quantitative dynamic equilibrium theory of trade in the fed funds market, calibrate it to fit a comprehensive set of marketwide and micro-level cross-sectional observations, and use it to make two contributions to the operational side of monetary policy implementation. First, we produce global structural estimates of the aggregate demand for reserves—a crucial decision-making input for modern central banks. Second, we propose diagnostic tools to gauge the central bank's ability to track a given fed funds target, and the heterogeneous incidence of policy actions on the shadow cost of funding across banks.
    JEL: C78 D83 E44 E49 G1 G18 G2 G21 G23 G28
    Date: 2023–06
  11. By: Fernández-Gallardo, Álvaro (Universidad Alicante); Lloyd, Simon (Bank of England); Manuel, Ed (Bank of England)
    Abstract: We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth by incorporating a narrative-identification strategy within a quantile-regression framework. Exploiting a data set covering a range of macroprudential policy actions across advanced European economies, we identify unanticipated and exogenous macroprudential policy ‘shocks’ and employ them within a quantile-regression setup. While macroprudential policy has near-zero effects on the centre of the GDP-growth distribution, we find that tighter macroprudential policy brings benefits by reducing the variance of future GDP growth, significantly and robustly boosting the left tail while simultaneously reducing the right. Assessing a range of potential channels through which these effects could materialise, we find that macroprudential policy operates through opposing tails of GDP and credit. Tighter macroprudential policy reduces the right tail of the future credit-growth distribution (both household and corporate) which, in turn, is particularly important for mitigating the left tail of GDP growth (ie, GDP-at-risk).
    Keywords: Growth-at-risk; macroprudential policy; narrative identification; quantile local projections
    JEL: E32 E58 G28
    Date: 2023–06–16
  12. By: Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
    Abstract: We examine the causal relationship between US monetary policy shocks, exchange rates and currency excess returns for a sample of eight advanced countries over the period 1980M1 to 2022M11. We find that the dynamics of the US dollar exchange rate is the main driver of currency excess returns. The exchange rate is significantly affected by US monetary policy shocks, where the persistence of this shock is important, as well as by an external shock. This external shock is strongly related to global risk aversion and the convenience yield that investors are willing to pay for holding US Dollar assets. A significant part of the response of excess currency returns is also expected, suggesting a violation of the UIP. Focusing only on the post-crisis period, the impact of both the external shock and the inflation targeting shock on exchange rates and currency excess returns disappears in the cross-section.
    Keywords: Exchange rates, excess currency returns, uncovered interest parity, convenience yield, global financial cycle, global risk, monetary policy
    JEL: E52 C32 E43 F31 F41 G15
    Date: 2023
  13. By: João Ricardo Faria; Peter McAdam
    Abstract: We derive a general “Janus” money demand function that reflects backward- and forward-looking habit formation. The scope of our model allows us to explain the breakdown of money-demand functions and reduced policy relevance of monetary aggregates. Integrating our Janus money demand into a Barro-Gordon framework reveals new insights for time inconsistency in monetary policy and a new impossibility theorem.
    Keywords: money demand; monetary policy; impossibility theorem
    JEL: E41 E5 E61 E71
    Date: 2023–05–11
  14. By: Linda S. Goldberg
    Abstract: Global liquidity refers to the volumes of financial flows – largely intermediated through global banks and non-bank financial institutions – that can move at relatively high frequencies across borders. The amplitude of responses to global conditions like risk sentiment, discussed in the context of the global financial cycle, depends on the characteristics and vulnerabilities of the institutions providing funding flows. Evidence from across empirical approaches and using granular data provides policy-relevant lessons. International spillovers of monetary policy and risk sentiment through global liquidity evolve in response to regulation, the characteristics of financial institutions, and actions of official institutions around liquidity provision. Strong prudential policies in the home countries of global banks and official facilities reduce funding strains during stress events. Country-specific policy challenges, summarized by the monetary and financial trilemmas, are partially alleviated. However, risk migration across types of financial intermediaries underscores the importance of advancing regulatory agendas related to non-bank financial institutions.
    JEL: E44 F30 F36 F38 F40 G15 G18 G23
    Date: 2023–06
  15. By: Kalsi, Harkeerit (University of Cambridge); Vause, Nicholas (Bank of England); Wegner, Nora (Bank of England)
    Abstract: Motivated by the March 2020 ‘dash for cash’, we build a model in which a potential liquidity shock to bond funds can prompt a self-fulfilling fire sale in the presence of a dealer with limited trading capacity. Following the global games literature, we derive the probability of a self-fulfilling fire sale. Introducing a central bank market backstop policy, we show that if the central bank can credibly commit to (i) set the size of its potential asset purchases high enough and (ii) its price discount low enough, then it can eliminate self-fulfilling fire sales without having to purchase any bonds. If the central bank acts less aggressively, it can still reduce the probability of a self-fulfilling fire sale. However, in response to the policy, funds choose to hold more bonds, which increases the probability of a self-fulfilling fire sale and reduces the effectiveness of the market backstop.
    Keywords: Market backstops; fire sales; bond purchases
    JEL: G12
    Date: 2023–06–22
  16. By: Baranova, Yuliya (Bank of England); Holbrook, Eleanor (Bank of England); MacDonald, David (Bank of England); Rawstorne, William (Bank of England); Vause, Nicholas (Bank of England); Waddington, Georgia (Bank of England)
    Abstract: More widespread central clearing could enhance dealers’ ability to intermediate financial markets by increasing the netting of buy and sell trades, thereby reducing the impact of trading on balance sheets and capital ratios. Drawing on trade‑level regulatory data, we study the netting benefits for UK dealers if comprehensive central clearing had been introduced to the cash gilt and gilt repo markets ahead of the March 2020 dash for cash (DFC) crisis. For the gilt repo market, we estimate that the policy would have reduced the gilt repo exposures on UK dealers’ balance sheets by 40% and, hence, boosted their aggregate leverage ratio by 3 basis points. If that policy had been accompanied by standardisation of repo maturity dates, such that they fell on the same day of the week (apart from for overnight repo), the reduction in exposures would have risen to 60% and the increase in the aggregate leverage ratio to 5 basis points. Such improvements in netting rates would in principle have allowed the dealers’ repo desks to expand their trading during the DFC by 2.5 times more than under prevailing clearing rates for each incremental unit of capital available to them. For cash gilt trades, central clearing would only have reduced unsettled trade exposures for dealers using a particular accounting treatment, but would have done so by up to 80% for that group, boosting its aggregate leverage ratio by 0.4 basis points. However, changes to the computation of the Basel III leverage ratio implemented in January 2023 would also have had these effects on cash trades.
    Keywords: Central clearing; dealers; gilts; market structure; repo
    JEL: G12 G18 G23 G28
    Date: 2023–06–02
  17. By: Florian Schuster (University of Cologne and ECONtribute); Marco Wysietzki (University of Cologne and ECONtribute); Jonas Zdrzalek (University of Cologne and ECONtribute)
    Abstract: We present a theoretical framework to characterize how financial market participants contribute to systemic risk, allowing us to derive optimal corrective policy interventions. To that end, we embed belief heterogeneity in a model of frictional financial markets. We document the asymmetry that, by their behavior, relatively more optimistic agents contribute more strongly to financial distress than more pessimistic agents do. We further show that financial distress is generally more likely in an economy whose agents hold heterogeneous rather than homogeneous beliefs. Based on these findings, we propose a system of non-linear Pigouvian taxes as the optimal corrective policy, which proves to generate considerable welfare gains over the linear policy advocated by former studies.
    Keywords: Financial amplification, pecuniary externalities, collateral constraint, financial crisis, belief heterogeneity, macroprudential policy
    JEL: D84 E44 G28 H23
    Date: 2023–06
  18. By: Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
    Abstract: Technocracy has come to be increasingly regarded as a threat to representative democracy. Significant attention has thus been recently devoted to exploring public preferences towards technocratic institutions. Elected policymakers’ attitudes have instead not been investigated as systematically. This paper fills this gap by examining politicians’ views on central banks. Based on an original elite survey of the Members of the European Parliament, we gauge elected policymakers’ attitudes towards the mandate and policy conduct of the European Central Bank. Our findings show that the political orientation of politicians largely drives attitudes towards the ECB’s institutional mandate. Interestingly, the findings from two experiments embedded in the survey also show that the attitudes of MEPs are not as static as ideological orientations would lead us to expect. The information set to which politicians are exposed significantly shapes their views on both the ECB’s mandate and its policy conduct, but less on ECB independence
    Keywords: accountability, central banks, ECB, independence, political attitudes, technocracy, trust
    Date: 2023
  19. By: Ander Pérez-Orive; Yannick Timmer
    Abstract: The stance of U.S. monetary policy has tightened significantly starting in March 2022. At the same time, the share of firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s.
    Date: 2023–06–23
  20. By: Marc-André Gosselin; Temel Taskin
    Abstract: We construct new indicators of the imbalance between demand and supply for the Canadian economy by using natural language processing techniques to analyze earnings calls of publicly listed firms. The results show that the text-based indicators are highly correlated with official inflation data and estimates of the output gap and improve the accuracy of inflation forecasts. This suggests that these indicators could help central banks foresee inflationary pressures in the economy. Our examination of other topics in earnings calls, such as supply chain disruptions and capacity constraints, points to the potential benefits of using textual data to quickly draw insights on a range of relevant topics. We conclude that text-based measures of economic slack should be included in central banks’ monitoring and forecasting toolkits.
    Keywords: Central bank research; Domestic demand and components; Econometric and statistical methods; Inflation and prices; Potential output
    JEL: C1 C3 E3 E5
    Date: 2023–06
  21. By: Maria Cristina Barbieri Goes (University of Bari Aldo Moro, Italy); Joana David Avritzer (Economics Department, Connecticut College, USA)
    Abstract: In this paper we explore the empirical implications of considering monetary and distribution shocks on semi-autonomous demand under a supermultiplier framework. In particular, we investigate the effect of changes in financial variables - the federal funds rate - and distributive variables - the wage share of income - on autonomous expenditure (e.g.: private residential investment and consumer credit), as well as economic growth. We use quarterly data for the United States economy from 1968 to 2022 and apply a SVAR model. We find that: (i) the federal funds rate, our financial variable, has a negative and statistically significant effect on autonomous expenditure, whether we define it to be given by residential investment added to consumer credit or to durable goods consumption; (ii) a positive shock in the wage share does seem to have a positive and significant effect on consumption and output, however, this effect is measured to be transitory; (iii) a positive shock in aggregated autonomous demand has a positive, persistent, and statistically significant effect on induced consumption and, output, as well as on the adjusted wage share; (iv) a positive shock in private residential investment has a positive, persistent and statistically significant effect on other autonomous components of demand and output; (v) while residential investment positively influences consumer credit, the inverse does not hold.
    Keywords: Supermultiplier, financial and distributional shocks, SVAR, US, semi-autonomous expenditure
    JEL: C32 D33 E11 E12 E31 E52
    Date: 2023–06
  22. By: Bada Han (Bank of Korea); Dongwook Kim (Bank of Korea); Youngjin Yun (Inha University)
    Abstract: This paper investigates the reasons behind international reserve accumulation in Emerging Market Economies (EMEs). We rationalize the view held among policymakers in EMEs that reserve accumulation is necessary to counteract the negative effects of unwanted capital inflows. First, we empirically show that EMEs do accumulate reserves in response to global push factor-driven capital inflows, particularly in the form of direct investment. In addition, EMEs with restrictions on residents' investment abroad or with less developed financial institutions accumulate higher levels of reserves. Next, we introduce a theoretical model with direct investment inflows to explain the empirical findings. In the face of a capital flow bonanza, it is optimal for EMEs to invest abroad to smooth consumption. However, various frictions hinder residents' overseas investments or make the investments socially inefficient. In such cases, the public sector accumulates international reserves to supplement the insufficient private outflows or replace the inefficient private outflows. Reserve accumulation becomes an essential tool for managing capital inflows in the presence of restrictions on private outflows.
    Keywords: international reserves, sudden stops, financial openness
    JEL: E60 E61 F30 F38 G01

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