An accumulation of international reserves and external debt: Evidence from developing countries


Mohd Daud, Siti Nurazira and Podivinsky, Jan M. (2011) An accumulation of international reserves and external debt: Evidence from developing countries. Global Economic Review, 40, (3), 229-249. (doi:10.1080/1226508X.2011.601626).

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Description/Abstract

The main analytical contribution of this paper is to analyze the cost of the decision to jointly hold reserves and sovereign debt. By analyzing the impact of holding reserves and sovereign debt on sovereign credit ratings will provide the evidence of the costs of holding reserves and debt with respect to credit risk. It is found that the positive effect of accumulation reserves that aims to improve sovereign ratings has been crowding-out by the negative effect of accumulation external debt which resulted in a net negative effect. As such, it is suggested that countries reduce their sovereign debt in order to maintain a good credit risk position while holds international reserves at the optimal level of 3.67 in a month of imports which is slightly higher than the conventional rule.

Item Type: Article
ISSNs: 1226-508X (print)
1744-3873 (electronic)
Keywords: international reserves, external debt, developing economies, credit risk
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Divisions: Faculty of Social and Human Sciences > Social Sciences > Economics
ePrint ID: 197495
Date Deposited: 23 Sep 2011 13:53
Last Modified: 27 Mar 2014 19:46
URI: http://eprints.soton.ac.uk/id/eprint/197495

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