Did foreign exchange holding influence growth performance during the global financial crisis?

Abstract

In a context of increased foreign exchange reserves holding from emerging and developing countries, this paper investigates the diminishing return of reserves holding assumption over the most severe phase of the global financial crisis (2008Q1–2010Q4). Relying on a Panel Smooth Transition Regression model, we highlight the differential effect of the accumulation of foreign exchange reserves for a set of financial vulnerabilities variables. In a specific manner, although reserves accumulation is effective above a critical threshold to cope with vulnerabilities related to the financial channel, we show that it becomes less effective beyond a certain threshold for domestic bank vulnerabilities. Our results are robust to alternative specifications.

Investigating the efficiency of foreign exchange reserves using stochastic frontier analysis: Evidence across the globe

“…An analysis of the impact of FER on the microeconomic variables is significant and uses a pure-sign restriction approach and summarizes that the FER amount must be justified with the need of a nation (Nie, 2017). It is suggested that FER must be from the source that is sympathetic in absorbing the financial crisis shocks (Allegret & Allegret, 2018).…”