Throughout the chapter, there are applications citing the dramatic accumulation of reserves among selected emerging markets and
Question:
Throughout the chapter, there are applications citing the dramatic accumulation of reserves among selected emerging markets and developing countries.
a. What are the causes of this reserve accumulation?
b. What are the costs of reserve accumulation? Why might a country decide to accumulate reserves, even in the face of relatively large interest rate spreads between domestic and foreign bonds?
c. Explain how reserve accumulation could affect outcomes in a first-generation model of crises.
d. Explain how reserve accumulation could affect outcomes in a second-generation model of crises.
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a Countries use sterilization bonds to prevent positive money demand shocks from expanding the money supply This means that a positive money demand shock will lead to reserve accumulation The benefit ...View the full answer
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