The empirics of foreign reserves

In this article, we study the determinants of cross-country variation in th e level of international reserves over the period 1981-1995. Confirming int uition, trade openness is easily the most important variable. There is also some evidence that financial deepening is associated with an increase in t he reserves ratio. Smaller and more volatile industrial countries hold larg er reserves than their larger, less volatile counterparts. In addition, mor e indebted developing countries tend to have smaller reserve ratios. We vie w these results as establishing some interesting stylized facts that may be helpful in informing future theoretical modeling of reserves behavior.