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Does It Matter How Central Banks Accumulate Reserves? Evidence from Sovereign Spreads

February 17, 2022

Kuala Lumpur Research Seminar Series

  • There has been substantial research on the benefits of accumulating foreign reserves, but less on the relative merits of how these reserves are accumulated. In this paper we explore whether the form of accumulation affects country risk. We first present a model of endogenous sovereign debt defaults, where we show that reserve accumulation through the issuance of debt contingent on local output reduces spreads in a way that reserve accumulation with foreign borrowing does not. We confirm this model prediction when taking the theory to the data. These results suggest that attention should be placed on the way reserves are accumulated, a distinction that has important practical implications. In particular, our results call into question the benefits of programs of reserves strengthening through external debt such as those typically implemented by multilateral organizations.

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  • César Sosa-Padilla is an Assistant Professor of Economics at the University of Notre Dame. Prior to that he was an Assistant Professor at McMaster University. He visited Princeton University as a Peter B. Kenen Fellow from 2019 to 2020. Currently, he is also a Visiting Scholar at the Research Department of the Federal Reserve Bank of Minneapolis from 2021 to 2022. He also serves as a Faculty Research Fellow in NBER’s program on International Finance and Macroeconomics (IFM) as well as an Associate Editor for the Journal of International Economics and for Oxford Open Economics. His research interests include international macroeconomics and finance, (domestic) macroeconomics, and fiscal policy. Most of his recent research has focused on understanding sovereign default crises. He received his Ph.D. in Economics in 2012 at the University of Maryland, and his Licenciatura en Economía in 2005 at the Universidad Nacional de Tucumán, Argentina.


  • WHEN (Kuala Lumpur time): Thursday, February 17, 2022: 9:00 -10:00am
  • WHEN (Washington, D.C. time): Wednesday, February 16, 2022: 8:00 – 9:00pm