2004, English, Article, Working paper edition: Contingent reserves management an applied framework Ricardo J. Caballero [and] Stavros Panageas [electronic resource] Ricardo J. Caballero

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Physical Description
  • 25 p. :
Published
  • Cambridge, MA Massachusetts Institute of Technology, Dept. of Economics 2004
Language
  • English

Edition details

Title
  • Contingent reserves management an applied framework Ricardo J. Caballero [and] Stavros Panageas
Author
  • Ricardo J. Caballero
Other Authors
  • Panageas, Stavros
  • Massachusetts Institute of Technology. Dept. of Economics
Published
  • Cambridge, MA Massachusetts Institute of Technology, Dept. of Economics 2004
Medium
  • [electronic resource]
Physical Description
  • 25 p. :
Series
Summary
  • One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden stop mechanism. We illustrate this point with a simple quantitative hedging model, where optimally used options and futures on the S&​P100's implied volatility index (VIX), increases the expected reserves available during sudden stops by as much as 40 percent. Keywords: Sudden stops, reserves, portfolio, VIX, hedging, options, futures. JEL Classifications: E2, E3, F3, F4, G0, C1.
Notes
  • "September 9, 2004." Includes bibliographical references (p. 25). Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.
Language
  • English
Contributed by
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