How much do international reserves buffer terms-of-trade shocks?
Joshua Aizenman, Sebastian Edwards, Daniel Riera-Crichton, 14 January 2012
Last year’s surge in commodity prices was a reminder, if we needed one, of the problems caused by terms-of-trade volatility in emerging economies. This column looks at the real exchange rate adjustments to commodity terms-of-trade shocks in the region exposed to the highest volatility – Latin America. It finds that active reserve management not only lowers the short-run impact of shocks, but also substantially reduces real exchange rate volatility.
Full Article: How much do international reserves buffer terms-of-trade shocks?
