We evaluate the change in international reserves in the aftermath of significant external shocks by using a quasi-experimental setup and focusing on earthquakes. Our objective is to understand the macroeconomic dynamics of quake-affected countries ex-post, and their ex-ante disaster risk mitigation strategies. The estimation is done on a panel of 103 countries over the period 1979–2016. We find that in the five years following a large earthquake: (i) Countries exposed to it accumulate reserves ex-post for precautionary reasons, supported by the inflows of foreign assistance and money expansion; (ii) Quake-prone countries tend to hold fewer reserves relative to the non-prone countries, suggested by the richer set of other disaster preventive measures in place for the former; (iii) The patterns of reserves holding post-earthquake vary with a country’s income level and other macroeconomic fundamentals.

How Do Shocks Affect International Reserves? A Quasi-Experiment of Earthquakes

Noy, I
2022-01-01

Abstract

We evaluate the change in international reserves in the aftermath of significant external shocks by using a quasi-experimental setup and focusing on earthquakes. Our objective is to understand the macroeconomic dynamics of quake-affected countries ex-post, and their ex-ante disaster risk mitigation strategies. The estimation is done on a panel of 103 countries over the period 1979–2016. We find that in the five years following a large earthquake: (i) Countries exposed to it accumulate reserves ex-post for precautionary reasons, supported by the inflows of foreign assistance and money expansion; (ii) Quake-prone countries tend to hold fewer reserves relative to the non-prone countries, suggested by the richer set of other disaster preventive measures in place for the former; (iii) The patterns of reserves holding post-earthquake vary with a country’s income level and other macroeconomic fundamentals.
2022
Disasters · Earthquakes · International Reserves · Foreign Exchange Holding
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12571/30039
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