mas speech, 2005-11-02
Moreno (2005) suggests that if the impact on competitiveness is not a consideration, the marginal benefit of an additional dollar of reserves could be estimated as the expected reduction in the cost of a currency crisis based on early warning system estimates (i.e the change in the probability of a crisis associated with an increase in reserves, times the cost of a crisis) while the marginal cost is the opportunity cost of holding reserves (e.g. the sovereign spread - which assumes reserves are financed by foreign borrowing) times the change in reserves.
Sentiment: neutral
Topic: mp_economic_activity