Exchange Rate Implications of Reserve Changes How Non-EZ.pdf

RESEARCH SEMINAR IN INTERNATIONAL ECONOMICS Gerald R. Ford School of Public Policy The University of Michigan Ann Arbor, Michigan 48109-3091 Discussion Paper No. 647 Exchange Rate Implications of Reserve Changes: How Non-EZ European Countries Fared during the Great Recession Kathryn M. E. Dominguez University of Michigan and NBER February 20, 20 14 Recent RSIE Discussion Papers are available on the World Wide Web at: /rsie/workingpapers/wp.html     Exchange Rate Implications of Reserve Changes:  How Non‐EZ European Countries Fared during the Great Recession  Kathryn M.E. Dominguez  University of Michigan and NBER    15 December 2013  Revised: 20 February 2014      Abstract:  The relationships between exchange rates, capital controls and foreign reserves during the  financial crisis suggest that reserve management plays a much more central role than has  typically been emphasized in international finance models.   Reserves seem to be especially  important for non‐EZ European countries, not only for those with currencies in the ERM II, but  also for those European countries in intermediate regimes that hope to deter currency market  pressure, and in so doing help to mitigate trilemma trade‐offs.    Key words: foreign exchange reserves, global financial crisis, exchange market pressure  JEL Classifications: F32, F41          This paper was presented at the 19th D