Accumulating Foreign Reserves Under Floating Exchange Rates

April 1, 2008

Preview Citation

Format: Chicago

Fernando M. Gonçalves Accumulating Foreign Reserves Under Floating Exchange Rates, (USA: International Monetary Fund, 2008) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Official accumulation of foreign reserves may be perceived as interventions to influence the exchange rate, undermining the credibility of floating exchange rates and inflation targets. This paper develops a theoretical framework to study the interaction between reserve accumulation and monetary policy. The model uncovers a trade-off between the speed of reserve accumulation and anti-inflationary credibility. Under reasonable assumptions, delegation of intervention and monetary policy decisions to separate government agencies allows faster reserve accumulation, while centralization of these decisions results in a more stable economy. The analysis underscores the importance of rather overlooked institutional features of policymaking in open economies.

Subject: Foreign exchange intervention, Inflation, Inflation targeting, Institutional arrangements for revenue administration, Reserves accumulation

Keywords: Monetary policy, Mover accent, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/096
Stock No:

WPIEA2008096
ISBN:

9781451869576
ISSN:

1018-5941

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