<abstract xmlns="http://www.w3.org/1999/xhtml">
<p>This paper analyses the effects of the foreign exchange reserves accumulation on the key nominal and real macroeconomic variables (GDP, employment, prices and exchange rates) in BRIC countries (Brazil, Russia, India, China). VAR model was used to empirically examine the effect of accumulation of foreign exchange reserves on macroeconomic variables. The empirical results in this paper show that after the initial shock of foreign exchange reserves, the exchange rate appreciation occurs, which can be explained by the fact that a higher level of foreign exchange reserves gives investors and rating agencies a lower risk of the country, which can consequently lead to appreciation of the foreign exchange rate. In this way, the price reaction would be neutralized. Consequently, the growth of foreign exchange reserves leads to the growth of economic activity measured by GDP growth.</p>
</abstract>

This paper analyses the effects of the foreign exchange reserves accumulation on the key nominal and real macroeconomic variables (GDP, employment, prices and exchange rates) in BRIC countries (Brazil, Russia, India, China). VAR model was used to empirically examine the effect of accumulation of foreign exchange reserves on macroeconomic variables. The empirical results in this paper show that after the initial shock of foreign exchange reserves, the exchange rate appreciation occurs, which can be explained by the fact that a higher level of foreign exchange reserves gives investors and rating agencies a lower risk of the country, which can consequently lead to appreciation of the foreign exchange rate. In this way, the price reaction would be neutralized. Consequently, the growth of foreign exchange reserves leads to the growth of economic activity measured by GDP growth.

Econometric VAR Analysis of the Effect of the Foreign Exchange Reserves on Macroeconomic Variables in Emerging Countries: The Case of BRIC Countries

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution 4.0 International License.

This paper analyses the effects of the foreign exchange reserves accumulation on the key nominal and real macroeconomic variables (GDP, employment, prices and...

Econometric VAR Analysis of the Effect of the Foreign Exchange Reserves on Macroeconomic Variables in Emerging Countries: The Case of BRIC Countries

Published Online: Sep 05, 2023

Page range: 87 - 109

Received: Jun 25, 2023

Accepted: Jul 02, 2023

DOI: https://doi.org/10.2478/jcbtp-2023-0026

Keywords
foreign exchange reserves, VAR, exchange rate, employment, economic growth, inflation

© 2023 Borivoje D. Krušković, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Econometric VAR Analysis of the Effect of the Foreign Exchange Reserves on Macroeconomic Variables in Emerging Countries: The Case of BRIC Countries

Published Online: Sep 05, 2023

Page range: 87 - 109

Received: Jun 25, 2023

Accepted: Jul 02, 2023

DOI: https://doi.org/10.2478/jcbtp-2023-0026

Keywordsforeign exchange reserves, VAR, exchange rate, employment, economic growth, inflation

© 2023 Borivoje D. Krušković, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Keywords
foreign exchange reserves, VAR, exchange rate, employment, economic growth, inflation