Global Impact of a Shift in Foreign Reserves to Euros

Beschreibung

This paper uses QUEST III, a multi-region global DSGE model, to study the effects of a gradual
equalization of the portfolio composition of official foreign reserves between dollars and euros.
We simulate a scenario of a shift in the composition of foreign reserves holdings from the present
ratio of 65 percent dollars and 25 percent euros to equal 45 percent shares over a 10 years period.
Technically, the shift is simulated as a shock to money demand and the balances of payments to
account for higher demand for euros. Our simulations point towards small real effects (an increase of real GDP in the euro area by up to 0.4 percent) of such a shift in holdings due to
sizable gains (losses) in consumption in the euro area (United States) resulting from the wealth effect. However, the shift leads to an appreciation of the euro of around 5 percent while the trade balance deteriorates by up to 0.4 percent of GDP. The effects for the United States are the mirror
image of this.

Zeitraum	23 Mai 2008 → 24 Mai 2008
Ereignistitel	Annual Meeting of the Austrian Economic Association NOeG 2008
Veranstaltungstyp	Keine Angaben
Bekanntheitsgrad	National