Jordan's International Reserve Position: Justifiably Strong, Issues 2007-2103
International Monetary Fund, Middle East and Central Asia Department, 2007 - Bank reserves - 19 pages
Jordan has seen a large increase in its international reserve holdings in recent years. While a healthy reserve buffer is needed under a fixed exchange rate regime, determining optimal reserve levels is not straightforward. In this paper, we first use several traditional measures of reserves adequacy to compare Jordan's reserve holdings with other emerging market (EM) countries. Subsequently, we analyze Jordan's reserve holdings using a reserves-optimizing model, based on Jeanne and Ranciere (2006) (J-R), but extended to allow reserve holdings to influence the likelihood of a sudden stop. The overall analysis suggests that Jordan's reserve holdings provide sufficient support to sustain the dinar peg and to deal with the most extreme capital account disruptions.
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actual reserve holdings allow reserve analytical simplicity assume assumption attributes of reserves average banking system Botswana broad money calculated optimal calibrate the model capital account capital inflows CD CD CD CM CM CM coefficient Column consumption-smoothing crisis current account deficit dddddddddddddddddddddddd dinar peg domestic consumers economy Effect of Reserves emerging market estimates of optimal exchange rate peg exogenous explanatory variables government debt government issues heteroskedasticity holding reserves impact of reserves international reserves Jordan's reserve holdings Jordanian lagged level of reserves measures of reserves model extensions months of imports Morocco non-sudden stop optimal level optimal reserve estimates optimal reserve holdings output loss percent of GDP percentage points point of GDP probit real GDP growth relative risk aversion reserve cover reserve levels reserves adequacy reserves increases reserves to short-term rules of thumb sample sensitivity analysis severe adverse shocks short-term debt short-term external debt sudden stop episode suggests that Jordan's term debt traditional measures