The Impact of Policy Uncertainty on Central Bank Reserves: The Example of the Fragile Five

In recent years, the global economic outlook has been shaped by increasing geopolitical risks, financial vulnerabilities, and policy uncertainties. The economies of Turkey, Brazil, India, Indonesia, and South Africa, known as the Fragile Five, are among the countries most affected by these uncertainties due to their high external financing dependence. This study analyzes the relationship between economic policy uncertainty (EPU) and international reserve adequacy over the 2005–2025 period. The effects of economic policy uncertainty on central banks' reserve accumulation behavior are examined within the framework of panel data analysis. According to the Guidotti–Greenspan rule and the IMF's ARA metric, reserve adequacy is found to vary significantly across countries. Turkey and South Africa are found to have insufficient reserve buffers, while India, Indonesia, and Brazil exhibit stronger positions. CIPS and CADF unit root tests, which take into account cross-sectional dependence, along with the CCEMG and AMG estimators, are used, and analysis is conducted using the panel causality methods of Driscoll-Kraay and Dumitrescu & Hurlin (2012). It has been observed that increasing policy uncertainty strengthens the tendency to accumulate reserves, especially in countries with high external financing dependency.