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Andreas Steiner assesses the relationships between global imbalances, financial crises, and central bank policies, with a specific focus on their reserves. His combination of a strictly international perspective with an analysis based on empirical research enables him to develop an analytical model that emphasizes interactions among individual central banks. With this innovative approach Steiner develops a new method for defining an optimal demand for reserves. By means of its framework through which issues of global disequilibria can be addressed, Global Imbalances, Financial Crises, and Central Bank Policies describes implications for financial reforms that might ultimately be more important than its empirical findings

Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially detrimental effects of sudden stops of capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in the level of reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a "fear of capital mobility" suffered by central banks. -- international reserves ; capital mobility ; macroeconomic trilemma

Countries' capital account policies might be contagious in the sense that domestic policies are driven by other countries' policies. A model of strategic interactions is developed to show that countries' best response to policy changes elsewhere consists in imitating this policy. Using a spatial econometric model, the hypothesis of policy interactions is tested in a large panel data set. The evidence shows that capital account policies are contemporaneously correlated across countries. Concerning fundamentals, the move to a fixed exchange rate regime and an increase in real world interest rates are correlated with the imposition of capital account restrictions. -- Capital Controls ; Strategic Interaction ; Panel Data Analysis

Central banks invest their foreign exchange reserves predominantly in government securities. By means of a panel data analysis we examine the relationship between reserve currency status and public budget balance during different constellations of the international monetary system: the sterling period (1890-1935) and the dollar dominance (since World War II). We show for both periods that reserve currency status significantly lowers the public budget balance of the center countries.