Léo‐Spencer Keungne Kouotang, Armand Brice Ngoupeyou, Hussein Nji Fifen Ngangue
{"title":"Optimal management of international reserves","authors":"Léo‐Spencer Keungne Kouotang, Armand Brice Ngoupeyou, Hussein Nji Fifen Ngangue","doi":"10.1111/roie.12773","DOIUrl":null,"url":null,"abstract":"This article develops a continuous time stochastic model for determining the optimal international reserves management policy when the data generating process of international reserves is a geometric Brownian motion. The policy is a two‐parameter control‐limit that consists of an appropriate and a ceiling level on reserves holdings, given an exogenous floor on international reserves. The optimal solution is determined so as to minimize the total costs of international reserves holdings. It is proved that our results extend the framework of Frenkel and Jovanovic when the logarithm of international reserves is an arithmetic Brownian motion. We also explain that Jung paper does not extend Frenkel and Jovanovic model as claimed by the former. The model is calibrated to derive the optimal level and liquidity tranche size upper bound of international reserves of the CEMAC monetary union.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0000,"publicationDate":"2024-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of International Economics","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1111/roie.12773","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
This article develops a continuous time stochastic model for determining the optimal international reserves management policy when the data generating process of international reserves is a geometric Brownian motion. The policy is a two‐parameter control‐limit that consists of an appropriate and a ceiling level on reserves holdings, given an exogenous floor on international reserves. The optimal solution is determined so as to minimize the total costs of international reserves holdings. It is proved that our results extend the framework of Frenkel and Jovanovic when the logarithm of international reserves is an arithmetic Brownian motion. We also explain that Jung paper does not extend Frenkel and Jovanovic model as claimed by the former. The model is calibrated to derive the optimal level and liquidity tranche size upper bound of international reserves of the CEMAC monetary union.
期刊介绍:
The Review of International Economics is devoted to the publication of high-quality articles on a full range of topics in international economics. The Review comprises controversial and innovative thought and detailed contributions from other directly related fields such as economic development; trade and the environment; and political economy. Whether theoretical, empirical or policy-oriented, its relevance to real world problems is of paramount concern.