INTERNATIONAL RESERVES AND STERILIZATION IN INDEBTED AND DOLLARIZED COUNTRIES: AN EFFECTIVE MONETARY POLICY?

Abstract

The primary aim of this paper is to explore the effectiveness of Hoarding International Reserves and Sterilization for dollarized and indebted countries such as Turkey and Lebanon, by measuring the sterilization coefficient, and the offset coefficient. It also focuses on exploring the link between the sources of Reserves and the external debt. Using quarterly data collected from the International Monetary Fund and from the Central Banks of Turkey and Lebanon between 1995 and 2010, we applied a 2SLS regression models and we identified explanatory variables that enabled us to estimate the aforementioned coefficients. Our results showed that despite their theoretical practice of sterilization policy, economic constrains of these countries contribute to weaken the efficacy expected from monetary policies

Keywords

• Monetary policy, International Reserves, Foreign Liabilities, Dollarized countries, Turkey, Lebanon

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