Search

This article presents comments and discussion on a paper titled "International Reserves in Emerging Market Countries: Too Much of a Good Thing?" which was presented at the Brookings Panel on Economic Activity in March of 2007. The author praises the careful formulation given of a utility-based welfare and analysis of optimal hoarding of international reserves. A calibration is presented that allows an evaluation of the degree to which recent hoarding trends are consistent with the model's predictions. A framework based on an elegant model provides strong predictions about optimal usable reserves.

This article presents a risk analysis assessing the large foreign reserves holdings of emerging market countries. The paper was presented at the Brookings Panel on Economic Activity in March of 2007. The policy challenges and opportunities of buildup in emerging market countries' "sovereign wealth" is explored, and what the impact of sovereign wealth diversification on global financial markets might be. The author reviews ways in which this wealth could be used in collective international arrangements both to insure against future crises and to promote financial development.

The Remarkable appreciation of the dollar since 1980 rivals the oil shocks of the 1970s as the most dramatic relative price change in the post-World War II world economy. It is widely agreed that the source of the increase in the price of the dollar is an increase in the attractiveness of dollar assets to investors around the world. But what makes U.S. assets more attractive? At the risk of being uncontroversial, and can continue to believe that the increase over the last five years in the differential between real interest rates in the U. S. and those in other countries is the major identifiable factor. The idea is that higher interest rates attract foreign capital into the country, causing the dollar to appreciate until it has become so "overvalued" relative to its long-run equilibrium value that the market expects a future depreciation sufficient to offset the interest differential. The proposed explanation for the shift in international asset demands could be broadened from "real interest differential" to "differential in expected rates of return on U.S. and foreign assets generally.