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OPTIMAL INTERNATIONAL RESERVES HOLDINGS IN EMERGING MARKETS ECONOMIES: THE BRAZILIAN CASE

Abstract

This paper discusses the optimal international reserves holding for Brazilian economy. The optimal is determined with the buffer stock (inventory) model, using a time series approach. This paper differs from traditional approaches that run cross-section analysis. We evaluate Brazilian's reserves holdings with the model and discuss the role of IMF accord in the reserves holdings. The paper also presents evidence to support the idea of fewer needs to hold international reserves in a floating foreign exchange rate regime than in a fixed one. Conclusions highlight that Brazilians' foreign reserves are slightly above the optimal level and the model may allow the country to evaluate the needs of IMF accord renew.

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This paper was published in Research Papers in Economics.

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