Working Paper Series no. 550: For a Few Dollars More: Reserves and Growth in Times of Crises

Abstract

Based on a dataset of 112 emerging economies and developing countries, this paper addresses the question whether the accumulation of international reserves has effectively protected countries during the 2008-09 financial crisis. More specifically, the paper investigates the relation between international reserves and the existence of capital controls. We find that the level of reserves matters: countries with high reserves relative to short-term debt suffered less from the crisis, particularly when associated with a less open capital account. This suggests some degree of complementarity between reserve accumulation and capital controls.

Matthieu Bussière, Gong Cheng, Menzie Chinn and Noëmie Lisack
April 2015

Classification JEL : F31, G01

Keywords : Foreign reserves, capital controls, financial crises, economic growth