Did Foreign Exchange Holding Influence Growth Performance During The Global Financial Crisis?

International audienceIn a context of increased foreign exchange reserves holding from emerging and developing countries, this paper investigates the diminishing return of reserves holding assumption over the most severe phase of the global financial crisis (2008Q1-2010Q4). Relying on a Panel Smooth Transition Regression model, we highlight the differential effect of the accumulation of foreign exchange reserves for a set of financial vulnerabilities variables. Specifically, while reserve accumulation is effective above a critical threshold to cope with vulnerabilities related to the financial channel, we show that it becomes less effective beyond a certain threshold for domestic bank vulnerabilities