Browse > Article
http://dx.doi.org/10.13106/jafeb.2020.vol7.no3.157

Optimum Reserves in Vietnam Based on the Approach of Cost-Benefit for Holding Reserves and Sovereign Risk  

TRAN, Thinh Vuong (Faculty of Banking, Banking University Ho Chi Minh City)
LE, Thao Phan Thi Dieu (Faculty of Banking, Banking University Ho Chi Minh City)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.3, 2020 , pp. 157-165 More about this Journal
Abstract
This paper estimates the optimum level of reserves in Vietnam based on the approach of reserves' cost-benefit and sovereign risk which is one of developing countries' characteristics. The cost of reserves is the opportunity cost when holding reserves. The benefit of reserves is the loss due to country's default in case that there is no reserves to finance external debt payment. The optimum reserves is found out by minimizing the total of opportunity cost and loss due to country's default with the probability of default. Through the usage of HP Filter method for calculating the loss due to country's default, ARDL regression for the risk premium model and lending rate of VND as proxy for opportunity cost together with the Vietnamese economic data in the period of 2005 - 2017, the empirical results show that the optimum reserves in Vietnam is almost higher than the actual reserves during the research period except the point of Q3/2008 and the last point of research period - Q4/2017. Therefore, Vietnam should continue to increase reserves for safety but Vietnam does not need pushing quickly the speed of increasing reserves. In addition, controlling Vietnamese optimum reserves is necessary to help the actual reserves become reasonable.
Keywords
Reserves; Optimum Reserves; Probability of Default;
Citations & Related Records
Times Cited By KSCI : 6  (Citation Analysis)
연도 인용수 순위
1 Heller, H. R. (1966). Optimal international reserves. The Economic Journal, 76(302), 296-311.   DOI
2 Hodrick, R. J., & Prescott, E. C. (1981). Post-war U.S. business cycles: An empirical investigation (Discussion Paper No. 451). Northwestern University, The Center for Mathematical Studies in Economics and Management Sciences (CMS-EMS).
3 IMF. (2011). Assessing reserve adequacy. Washington, DC: International Monetary Fund. Retrieved June 15, 2019 from https://www.imf.org/external/np/pp/eng/2011/021411b.pdf
4 IMF. (2012). International reserves: IMF concerns and country perspectives. Washington, DC: International Evaluation Office, International Monetary Fund. Retrieved June 15, 2019 from https://www.oecd.org/derec/imf/InternationalReserves%20IMF2013_Main_Report.pdf
5 Kripfganz, S., & Schneider, D. C. (2016). ARDL: Stata module to estimate autoregressive distributed lag models. Paper presented at the Stata Conference, Chicago, July 29, 2016. Retrieved June 15, 2019 from https://www.stata.com/meeting/chicago16/slides/chicago16_kripfganz.pdf
6 Nguyen, H. H. (2019). The role of state budget expenditure on economic growth: empirical study in Vietnam. Journal of Asian Finance, Economics and Business, 6(3), 81-89. https://doi.org/10.13106/jafeb.2019.vol6.no3.81   DOI
7 Oputa, N. C., & Ogunleye, T. S. (2010). External reserves accumulation and the estimation of the adequacy level for Nigeria. Economic and Financial Review, 48(3), 1-29.
8 Ozyildirim, S., & Yaman, B. (2005). Optimal versus adequate level of international reserves: evidence for Turkey. Applied Economics, 37(13), 1557-1569.   DOI
9 Prabheesh, K. P. (2013). Optimum international reserves and sovereign risk: Evidence from India. Journal of Asian Economics, 28(2013), 76-86.   DOI
10 Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.   DOI
11 Tecnica, G. (2012). Optimum and adequate level of international reserves (Borradores de Economia No. 727I). Banco de la Republica, Colombia. Retrieved June 17, 2019 from https://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_727I.pdf
12 Tule, M. K., Egbuna, E. N., Sagbamah, J. E. L., Abdusalam, S. A., Ogundele, O. S., & Oduyemi, A. O. (2015). Determination of Optimal Foreign Exchange Reserves in Nigeria (CBN Working Paper Series CBN/WPS/01/2015/06). Central Bank of Nigeria. Retrieved June 17, 2019 from https://www.cbn.gov.ng/out/2015/ccd/determination%20of%20optimal%20foreign%20exchange%20reserves%20in%20nigeria.pdf
13 Yu, H. (2018). Is currency appreciation or depreciation expansionary in Thailand? Journal of Asian Finance, Economics and Business, 5(1), 5-9. http://dx.doi.org/10.13106/jafeb.2018.vol5.no1.5   DOI
14 Gujarati, D. (2011). Econometrics by example (1st ed.). London, UK: Palgrave Macmillan.
15 Ben-Bassat, A., & Gottlieb, D. (1992). Optimal international reserves and sovereign risk. Journal of International Economics, 33(1992), 345-362.   DOI
16 Calvo, G. A., Izquierdo, A., & Loo-Kung, R. (2012). Optimal holdings of international reserves: self-insurance against sudden stop (NBER Working Paper No. 18219). National Bureau of Economic Research, Inc. DOI: 10.3386/w18219.
17 Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom Inflation. Econometrica, 50(4), 987-1008.   DOI
18 Guan, F. E., & Lau, W. Y. (2018). Triffin Dilemma and international monetary system: evidence from Pooled Mean Group Estimation. Journal of Asian Finance, Economics and Business, 5(2), 5-14. http://doi.org/10.13106/jafeb.2018.vol5.no2.5   DOI