Reserves Over the Transitions to Floating and to Inflation Targeting: Lessons From the Developed World
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Date
2003
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Abstract
Este trabajo destaca la evolución de las reservas internacional oficiales en países desarrollados que han transitado a esquemas de metas de inflación y/o flotación cambiaria. Encontramos varios resultados que son de interés para las políticas económicas de países emergentes, tales como Brasil, Chile y México, que han transitado a esquemas monetarios y esquemas en estas líneas. Primero, la flotación cambiaria junto con un esquema de metas de inflación, se asocia con una disminución persistente de 10 a 20% en el nivel de reservas oficiales mantenidas en el Banco Central. Segundo, esta reducción corresponde mayormente a una reasignación de liquidez internacional hacia el sector privado financiero, que acomoda así parte del efecto en el nivel y composición de la posición de inversión externa neta. Tercero, se aprecia un claro cambio en la correlación entre el diferencial de tasas y la dinámica de las reservas oficiales, apoyando fuertemente la predicción de Mundell-Fleming respecto a la exogeneidad de la oferta de dinero bajo flotación cambiaria. Cuarto, lo último también muestra que, una vez que las restricciones sobre la volatilidad del tipo de cambio se eliminan, el stock de reservas puede determinarse de forma independiente por el Banco Central, de acuerdo a consideraciones de costo-beneficio, sin afectar la credibilidad del esquema cambiario de flotación junto con metas de inflación.
This paper highlights the evolution of official international reserves in developed countries that transited towards Inflation Targeting (IT) and/or floating exchange rates. We find several results that are of interest to policymakers in emerging countries, such as Brazil, Chile and Mexico, which have revamped their monetary and exchange rate arrangements along those lines. First, the adoption of a floating exchange rate and an IT framework are associated with a persistent 10% to 20% reduction in real official reserves held at the Central Bank. Second, this reduction in official reserves corresponds mainly to a reallocation of international liquidity towards the private financial sector, that accommodates part of the effect on the level or composition of the net foreign asset position of the countries. Third, there is a clear change in the correlation between interest rate differentials and the dynamics of official reserves, strongly supporting the Mundell-Fleming result regarding the exogeneity of money supply under floating exchange rates. Fourth, the latter also shows that, once constraints on exchange rate volatility are removed, the stock of reserves can be determined independently by the Central Bank, according to cost-benefit analysis, without hindering the credibility of the combination of a floating regime and inflation targeting
This paper highlights the evolution of official international reserves in developed countries that transited towards Inflation Targeting (IT) and/or floating exchange rates. We find several results that are of interest to policymakers in emerging countries, such as Brazil, Chile and Mexico, which have revamped their monetary and exchange rate arrangements along those lines. First, the adoption of a floating exchange rate and an IT framework are associated with a persistent 10% to 20% reduction in real official reserves held at the Central Bank. Second, this reduction in official reserves corresponds mainly to a reallocation of international liquidity towards the private financial sector, that accommodates part of the effect on the level or composition of the net foreign asset position of the countries. Third, there is a clear change in the correlation between interest rate differentials and the dynamics of official reserves, strongly supporting the Mundell-Fleming result regarding the exogeneity of money supply under floating exchange rates. Fourth, the latter also shows that, once constraints on exchange rate volatility are removed, the stock of reserves can be determined independently by the Central Bank, according to cost-benefit analysis, without hindering the credibility of the combination of a floating regime and inflation targeting