Date of Award

Spring 5-15-2023

Author's School

Graduate School of Arts and Sciences

Author's Department


Degree Name

Doctor of Philosophy (PhD)

Degree Type



Since the 1990s, international reserves accumulation has particularly surged in emerging economies. What are the rationals behind this rise and the implications of international reserves accumulation for emerging economies? Chapter 1 of the dissertation, titled The Effects of Reserves Accumulation on Sovereign Default Under Terms of Trade Shocks, studies what is the value of holding international reserves in emerging economies when they experience fluctuations in their terms of trade and the sovereign debt is denominated in foreign currency. Firstly, I document stylized facts regarding a sample of emerging economies over the period 1997-2019 and find that there is a negative relationship between terms of trade and reserves relative to their sovereign risk. I then characterize a sovereign default model with international reserves accumulation and public external debt denominated in foreign currency subject to terms of trade fluctuation. With this model, I assess two things: first, to what extent terms of trade matter for reserves accumulation and second, what is the value of holding international reserves. Firstly, I find that not only deterministic terms of trade reduce international reserves accumulation by 5%, but also that by eliminating the roll-over risk which accounts for the majority of the accumulation in the model there is still a need for holding reserves when terms of trade fluctuate, something which other models were not able to rationalize. Second, I find that not holding reserves reduces in half default risk, welfare falls and consumption is more volatile in particular when terms of trade are fluctuating. Chapter 2, titled Central Bank Independence, International Reserves and Disinflation in Emerging Economies, a joint work with Andrea Paloschi, examines how central bank independence in emerging economies rationalizes the rise in international reserves accumulation and disinflation in emerging economies over the last two decades. We develop a two-regime sovereign default model in which the fiscal authority issues debt denominated in local currency and the monetary authority chooses the international reserves accumulation and inflation rates. In the case of non-defaultable debt, which allows to obtain analytical results, we find that a dual regime generates distortions in the reserves accumulation and borrowing. First, because higher international reserves affects the future response of the fiscal authority in terms of borrowing. Second, because higher current debt generates future changes in reserves and inflation. More debt increases the desire to accumulate reserves as well as the incentives to generate inflation for debt diluting purposes. Meanwhile, the effects on debt issuance and reserves accumulation on inflation are ambiguous. On the one hand, higher international reserves can lead to higher borrowing from the fiscal authority, increasing the debt dilution incentives. On the other hand, an improvement in the net asset position reduces the benefits of inflation on consumption. The direction and magnitude of the overall effect will be determined by the calibration of the model.


English (en)

Chair and Committee

Francisco J. Buera

Committee Members

Yongseok Shin, Paulina Restrepo-Echavarría, Ping Wang, Gaetano Antinolfi,