Understanding Fiji’s declining foreign reserves position paresh Kumar narayan and seema narayan

95 Pacific Economic Bulletin volume 24 number 2 july 2009 © the australian national University This article examines the volatility in Fiji’s foreign reserves—in particular, whether shocks have an asymmetrical effect on volatility and whether shocks have a persistent impact on volatility. In the pre-coup period (1975–86), shocks had a temporary effect on volatility; in the coup period (1987–2006), shocks had a more lasting impact. In the pre-coup period, negative shocks contributed more to foreign reserves volatility than positive shocks; but in the period including the coups, positive shocks increased the volatility of foreign reserves more than negative shocks. The reasons for, and the policy implications of, this asymmetrical behaviour are explored. Paresh Kumar Narayan is the Professor of Finance, School of Accounting Economics and Finance, Faculty of Business and Law, Deakin University.