Balance sheet effects, foreign reserves and public policies

Balance sheet effects, foreign reserves and public policies ¬リニ

This paper shows that countries can use foreign reserves to enhance their domestic economies’ resilience to potential risks from balance sheet effects. Based on a theoretical model, this paper demonstrates that the government can either deploy its foreign reserves to lend in foreign currency to the private sector or increase fiscal spending on domestic goods. Both these policy tools can remedy ...

Balance Sheet Effects on Option Pricing

A balance sheet structure including fixed assets, net working capital and risky long-term debt leads to a model for option pricing of the firm’s equity. Each of the financial components constitutes a source of risk. A hedge based on three distinct options and the stock enables risk neutral valuation and avoids the problems of lack of tradability of the assets and market incompleteness reflected...

Balance Sheet

Foreign Dollar Reserves and Financial Stability

Countries have accumulated massive foreign reserve portfolios, but the reasons for doing so remain debated. I document a new empirical fact on the compositions of foreign reserve portfolios, and argue that the prevalence of the dollar supports an explanation in which foreign reserves hedge liquidity shocks to dollarized financial systems. First, I fit a Bayesian dynamic linear model to extract ...

Foreign Reserves and the Common Man

The most oft-repeated remark one hears these days in Pakistan is: What good is this $12 billion of foreign reserves when the plight of the common man is not improving. A lot of so-called learned economists have also opined that this money should be spent by the Government on increasing expenditure for reducing poverty. This paper attempts to address these issues and clarify the confused thinkin...