TY - BOOK ID - 84658460 TI - Optimal Precautionary Reserves for Low-Income Countries : A Cost-Benefit Analysis AU - Dabla-Norris, Era. AU - Kim, Jun. AU - Shirono, Kazuko. PY - 2011 SN - 1463989474 146396126X PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Exports and Imports KW - Financial Risk Management KW - Foreign Exchange KW - Banks and Banking KW - Macroeconomic Analyses of Economic Development KW - Development Planning and Policy: Trade Policy KW - Factor Movement KW - Foreign Exchange Policy KW - Trade: General KW - Financial Crises KW - Monetary Policy KW - Currency KW - Foreign exchange KW - International economics KW - Economic & financial crises & disasters KW - Banking KW - Exchange rate arrangements KW - Conventional peg KW - Exchange rate flexibility KW - Imports KW - Financial crises KW - International trade KW - Reserve positions KW - Central banks KW - Foreign exchange reserves KW - United States UR - https://www.unicat.be/uniCat?func=search&query=sysid:84658460 AB - This paper develops a cost-benefit approach that helps to quantify the optimal level of international reserves in low-income countries, focusing on the role of reserves in preventing and mitigating absorption drops triggered by large external shocks. The approach is applied to a sample of 49 LICs over the period 1980-2008 to yield estimates of the likelihood and severity of a crisis. The calibration results suggest that the standard metric of three months of imports is inadequate for countries with fixed exchange rate regimes. The results also highlight the role of overall policy frameworks and availability of Fund-support in determining optimal reserve levels, raising questions about the uniform applicability of standard rules of thumb across countries. ER -