The need for official reserves in Latin America: Assessing the precautionary motive, 1995-2011

Abstract

In this paper we estimate the demand for official reserves in Latin America during the period 1995-2011. We assume that the main concern of the monetary authorities to demand reserves is the fear of suffering external drains, and its associated output costs. In other words, we attempt to show that the so-called precautionary motive drives the demand for international reserves in the region. Our econometric results confirm that Latin American countries demand ever increasing amounts of foreign exchange to protect themselves against the likelihood of external drains.

Keywords

• reservas internacionales
• motivo precautorio
• variables financieras
• América Latina
• apertura financiera