Essays on international reserve accumulation and cooperation in Latin America

One of the defining trends in international finance over the last two decades has been the unprecedented growth in the levels of international reserves accumulated by emerging nations. In a global financial system characterized by market failures and sudden stops, many developing countries have opted for the protection provided by individual accumulation of reserves as a second-best outcome. However, as suggested by Rodrik (2006), among others, the accumulation of reserves comes at a hefty opportunity cost to the nations that hold them. It is this particular aspect that brings into question—or at least merits a re-examination of—the validity and efficiency of reserve accumulation as a stabilization and development strategy, particularly in the context of some cash-strapped developing nations. This dissertation takes an in-depth look at this trend in Latin America by investigating the extent of protection of these precautionary reserves, the role of contagion risk in the accumulation process, and the outlook of regional arrangements of cooperation, such as regional reserve pooling mechanisms