The role of international reserves on real exchange rate: a panel data analysis

This article analyzes whether the accumulation of international reserves affects real exchange rates for a set of 57 economies. Panel ARDL estimations, for annual data from 1994 to 2017, show that higher (lower) levels of international reserves cause appreciation (depreciation) of exchange rate and reduce (increase) its volatility, in the long run. As for the error-correction related to deviations from the long run, short run adjustments in exchange rate volatility occur at a much faster rate than corrections in the exchange rate level. The Balassa-Samuelson effect, inflation and inflation differential also play significant roles, whereas monetary independence is partially important.