In this article, we study the determinants of cross-country variation in the level of international reserves over the period 1981–1995. Confirming intuition, trade openness is easily the most important variable. There is also some evidence that financial deepening is associated with an increase in the reserves ratio. Smaller and more volatile industrial countries hold larger reserves than their larger, less volatile counterparts. In addition, more indebted developing countries tend to have smaller reserve ratios. We view these results as establishing some interesting stylized facts that may be helpful in informing future theoretical modeling of reserves behavior.
foreign reserves openness volatility financial development external debt