Reserve accumulation, growth and financial crises

We present a model that reproduces two salient facts characterizing the international monetary system: Fast growing emerging countries i) run current account surpluses, ii) accumulate reserves and receive net private inflows. study two-sector, tradable non-tradable, small open economy. There is growth externality in sector agents have imperfect access to financial markets. By accumulating foreign reserves, government induces real exchange rate depreciation reallocation of production towards boosts growth. Financial frictions generate substitutability between public debt flows so do not perfectly offset policy. The possibility using provide liquidity during crises amplifies positive impact reserve accumulation on optimal management entails fast accumulation, as well higher larger surpluses compared economy with no policy intervention.