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Should Central Banks Try to Make Profit on their FX Reserves?
Tabášek, Jakub ; Havránek, Tomáš (advisor) ; Molnár, Vojtěch (referee)
The first part of the thesis uses vector autoregressions to examine the influence of foreign reserves on macroeconomic variables. The results suggest an econom- ically significant influence on both household consumption and gross capital formation in Brazil, Chile, Argentina, and Indonesia, while in the Philippines and South Korea the influence seems rather weak. However, there is some un- certainty surrounding the results and the relationships may be unstable through time, suggesting that the question is worth revisiting in the future. The second part deals with the management of foreign reserves and in- vestigates whether the long-term management by the Monetary Authority of Singapore, which entails the objective of providing a regular income stream to the government budget, could be an option for other central banks. Given the similarity of objectives, the discussion builds on a comparison with the man- agement practices of large U.S. university endowments and suggests that the comparison seems to yield interesting insights pertaining to asset allocation. However, constraints stemming from the size of central bank portfolios and challenges having to do with expertise and management may have implications for the overall stability of investment returns. Given the specific character of a central...
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