The Impact of the Accumulation of International Reserves before the Global Financial Crisis on the Economic Performance of Countries after the Crisis

Abstract

This study examines whether pre-crisis international reserve accumulations, as well as exchange rate and reserve policy decisions made during the global financial crisis, can help to explain cross-country differences in post-crisis economic performance. The approach followed in this study focuses not only on the total stock of official reserves held by countries, but also on the decisions made by governments to purchase or sell reserve assets during the crisis period. The study introduces new data made available through the IMF Special Data Dissemination Standard (SDDS) Reserve Template, which allow us to distinguish interest income and valuation changes in the stock of official reserves from the actively managed component of reserves. This novel data is used to gauge how (and whether) reserve accumulation policies influenced the economic and financial performance of countries during and after the global crisis. The findings support the view that higher reserve accumulations prior to the crisis are associated with higher post crisis GDP growth.