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THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE

Year 2026, Volume: 24 Issue: 1, 295 - 315, 21.03.2026

Erhan Akardeniz

https://doi.org/10.11611/yead.1815956
https://izlik.org/JA23EG85NH

Abstract

In recent years, the global economic outlook has been shaped by increasing geopolitical risks, financial vulnerabilities, and policy uncertainties. The economies of Turkey, Brazil, India, Indonesia, and South Africa, known as the Fragile Five, are among the countries most affected by these uncertainties due to their high external financing dependence. This study analyzes the relationship between economic policy uncertainty (EPU) and international reserve adequacy over the 2005–2025 period. The effects of economic policy uncertainty on central banks' reserve accumulation behavior are examined within the framework of panel data analysis. According to the Guidotti–Greenspan rule and the IMF's ARA metric, reserve adequacy is found to vary significantly across countries. Turkey and South Africa are found to have insufficient reserve buffers, while India, Indonesia, and Brazil exhibit stronger positions. CIPS and CADF unit root tests, which take into account cross-sectional dependence, along with the CCEMG and AMG estimators, are used, and analysis is conducted using the panel causality methods of Driscoll-Kraay and Dumitrescu & Hurlin (2012). It has been observed that increasing policy uncertainty strengthens the tendency to accumulate reserves, especially in countries with high external financing dependency.

Keywords

Macroeconomic Uncertainty Monetary Policy Reserve Management Financial Stability

References

  • Ahmed, S. and Zlate, A. (2014) “Capital Flows to Emerging Market Economies: A Brave New World?”, Journal of International Money and Finance, 48: 221–248. https://doi.org/10.1016/j.jimonfin.2014.08.002
  • Aizenman, J. and Ito, H. (2022) “Central Bank Reserves and Financial Vulnerabilities: Emerging Markets After COVID-19”, NBER Working Paper, No. 30211. https://www.nber.org/papers/w30211
  • Aizenman, J. and Sun, Y. (2012) “The Financial Crisis and Sizable International Reserves Depletion: From Fear of Floating to the Fear of Losing International Reserves?”, International Review of Economics and Finance, 24: 250–269. https://doi.org/10.1016/j.iref.2012.03.004
  • Aizenman, J. and Lee, J. (2007) “International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence”, Open Economies Review, 18(2): 191–214. https://doi.org/10.1007/s11079-007-9030-z
  • Aizenman, J. and Marion, N. (2003) “The High Demand for International Reserves in the Far East: What’s Going On?”, Journal of the Japanese and International Economies, 17(3): 370–400. https://doi.org/10.1016/S0889-1583(03)00008-X
  • Baker, S. R., Bloom, N., and Davis, S. J. (2016) “Measuring Economic Policy Uncertainty”, Quarterly Journal of Economics, 131(4): 1593–1636. https://doi.org/10.1093/qje/qjw024
  • Baltagi, B. H. (2021) Econometric Analysis of Panel Data, 6. Baskı, Springer. https://link.springer.com/book/10.1007/978-3-030-53953-5
  • Bank for International Settlements (2011) “Central Bank Reserves and Sovereign Risk”, BIS Papers, No. 58. https://www.bis.org/publ/bppdf/bispap58.htm
  • Becker, R., Enders, W., and Lee, J. (2006) “A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks”, Journal of Time Series Analysis, 27(3): 381–409. https://doi.org/10.1111/j.1467-9892.2006.00478.x
  • Beckmann, J. and Bettendorf, T. (2025) “Effects of Global Uncertainty on International Portfolio Flows”, Deutsche Bundesbank Monthly Report, October. https://www.bundesbank.de/resource/blob/xxxxx/monthly-report-october-2025-data.pdf
  • Breusch, T. S. and Pagan, A. R. (1980) “The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics”, Review of Economic Studies, 47(1): 239–253. https://doi.org/10.2307/2297111
  • Bussière, M., Cheng, G., Chinn, M. D., and Lisack, N. (2015) “For a Few Dollars More: Reserves and Growth in Times of Crises”, Journal of International Money and Finance, 52: 127–145. https://doi.org/10.1016/j.jimonfin.2014.11.008
  • Chudik, A. and Pesaran, M. H. (2015) “Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models with Weakly Exogenous Regressors”, Journal of Econometrics, 188(2): 393–420. https://doi.org/10.1016/j.jeconom.2015.03.007
  • Demir, F. and Ersan, O. (2017) “Economic Policy Uncertainty and Cash Holdings: Evidence from BRIC Countries”, Emerging Markets Review, 33: 189–200. https://doi.org/10.1016/j.ememar.2017.08.001
  • Driscoll, J. C. and Kraay, A. C. (1998) “Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data”, Review of Economics and Statistics, 80(4): 549–560. https://doi.org/10.1162/003465398557825
  • Dumitrescu, E. I. and Hurlin, C. (2012) “Testing for Granger Non-Causality in Heterogeneous Panels”, Economic Modelling, 29(4): 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
  • Enders, W. and Lee, J. (2012) “The Flexible Fourier Form and Dickey–Fuller Type Unit Root Tests”, Economics Letters, 117(1): 196–199. https://doi.org/10.1016/j.econlet.2012.04.081
  • Ghosh, A. R., Ostry, J. D., and Tsangarides, C. G. (2012) “Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets Since the 1980s”, IMF Economic Review, 60(2): 303–344. https://doi.org/10.5089/9781463933197.001
  • Gilal, A. A. and Ismail, N. A. (2025) “Economic Policy Uncertainty and Foreign Reserves: Empirical Evidence from BRIC Countries”, International Journal of Economics & Business Administration, 13(2): 3–23. https://ijeba.com/journal/882
  • González, A., Teräsvirta, T., and Van Dijk, D. (2005) “Panel Smooth Transition Regression Models”, Econometric Reviews, 24(3): 307–343. https://doi.org/10.1080/07474930500243019
  • Greenspan, A. (1999) “Currency Reserves and Debt”, World Bank Conference, Washington D.C. https://www.federalreserve.gov/boarddocs/speeches/1999/19990429.htm
  • Hansen, B. E. (1999) “Threshold Effects in Non-Dynamic Panels: Estimation, Testing, and Inference”, Journal of Econometrics, 93(2): 345–368. https://doi.org/10.1016/S0304-4076(99)00025-1
  • International Monetary Fund (2025) “Assessing Reserve Adequacy (ARA)”, IMF Data Mapper. https://www.imf.org/external/datamapper/Reserves_ARA@ARA , (20.12.2025)
  • International Monetary Fund (2016) “Guidance Note on the Assessment of Reserve Adequacy and Related Considerations”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • International Monetary Fund (2013) “Assessing Reserve Adequacy – Further Considerations”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • International Monetary Fund (2011) “Assessing Reserve Adequacy”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • Jeanne, O. and Rancière, R. (2011) “The Optimal Level of International Reserves for Emerging Market Countries: A New Formula and Some Applications”, Economic Journal, 121(555): 905–930. https://doi.org/10.1111/j.1468-0297.2011.02435.x
  • Kimball, M. S. (1990) “Precautionary Saving in the Small and in the Large”, Econometrica, 58(1): 53–73. https://doi.org/10.2307/2938330
  • Mishra, R. and Datta, A. (2020) “Policy Uncertainty and Foreign Exchange Reserves: Evidence from India”, Applied Economics Letters, 27(18): 1482–1487. https://doi.org/10.1080/13504851.2019.1696443
  • Obstfeld, M., Shambaugh, J. C., and Taylor, A. M. (2010) “Financial Stability, the Trilemma, and International Reserves”, American Economic Journal: Macroeconomics, 2(2): 57–94. https://doi.org/10.1257/mac.2.2.57
  • Pesaran, M. H. and Yamagata, T. (2008) “Testing Slope Homogeneity in Large Panels”, Journal of Econometrics, 142(1): 50–93. https://doi.org/10.1016/j.jeconom.2007.05.010
  • Pesaran, M. H. (2007) “A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence”, Journal of Applied Econometrics, 22(2): 265–312. https://doi.org/10.1002/jae.951
  • Pesaran, M. H. (2004) “General Diagnostic Tests for Cross Section Dependence in Panels”, CESifo Working Paper, No. 1229. https://www.cesifo.org/en/publikationen/2004/working-paper/general-diagnostic-tests-cross-section-dependence
  • Pesaran, M. H., Shin, Y., and Smith, R. J. (1999) “Pooled Mean Group Estimation of Dynamic Heterogeneous Panels”, Journal of the American Statistical Association, 94: 621–634. https://doi.org/10.1080/01621459.1999.10474156
  • Ramsey, J. B. (1969) “Tests for Specification Errors in Classical Linear Least Squares Regression Analysis”, Journal of the Royal Statistical Society: Series B, 31(2): 350–371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x
  • Rodrigues, P. M. M. and Taylor, A. M. R. (2012) “The Flexible Fourier Form and Local GLS De-Trending Unit Root Tests”, Oxford Bulletin of Economics and Statistics, 74(5): 736–759. https://doi.org/10.1111/j.1468-0084.2012.00710.x
  • Syed, Q. R. (2023) “Climate Policy Uncertainty and Its Impact on Energy Demand: An Empirical Evidence Using the Fourier Augmented ARDL Model”, Energy Policy, 168: 113–121. https://doi.org/10.1016/j.enpol.2022.113121

THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE

Year 2026, Volume: 24 Issue: 1, 295 - 315, 21.03.2026

Erhan Akardeniz

https://doi.org/10.11611/yead.1815956
https://izlik.org/JA23EG85NH

Abstract

Son yıllarda küresel ekonomik görünüm; artan jeopolitik riskler, finansal kırılganlıklar ve politika belirsizlikleriyle şekillenmiştir. Kırılgan Beşli olarak adlandırılan Türkiye, Brezilya, Hindistan, Endonezya ve Güney Afrika ekonomileri, yüksek dış finansman bağımlılıkları nedeniyle bu belirsizliklerden en fazla etkilenen ülkeler arasında yer almaktadır. Çalışma, 2005–2025 döneminde ekonomik politika belirsizliği (EPU) ile uluslararası rezerv yeterliliği arasındaki ilişkiyi analiz etmektedir. Ekonomik Politika Belirsizliğinin merkez bankalarının rezerv biriktirme davranışları üzerindeki etkileri panel veri analizi çerçevesinde incelenmiştir. Guidotti–Greenspan kuralı ve IMF’nin ARA metriğine göre rezerv yeterliliğinin ülkeler arasında önemli farklılıklar gösterdiği görülmüştür. Türkiye ve Güney Afrika’nın rezerv tamponlarının yetersiz olduğu; buna karşılık Hindistan, Endonezya ve Brezilya’nın daha güçlü bir pozisyon sergilediği belirlenmiştir. Yatay kesit bağımlılığını dikkate alan CIPS ve CADF birim kök testleri ile CCEMG ve AMG tahmincileri kullanılmış, Driscoll-Kraay ve Dumitrescu & Hurlin (2012) panel nedensellik yöntemleriyle analiz yapılmıştır. Artan politika belirsizliğinin özellikle dış finansman bağımlılığı yüksek ülkelerde rezerv biriktirme eğilimini güçlendirdiği görülmüştür.

Keywords

Makroekonomik Belirsizlik Para Politikası Rezerv Yönetimi Finansal İstikrar

References

  • Ahmed, S. and Zlate, A. (2014) “Capital Flows to Emerging Market Economies: A Brave New World?”, Journal of International Money and Finance, 48: 221–248. https://doi.org/10.1016/j.jimonfin.2014.08.002
  • Aizenman, J. and Ito, H. (2022) “Central Bank Reserves and Financial Vulnerabilities: Emerging Markets After COVID-19”, NBER Working Paper, No. 30211. https://www.nber.org/papers/w30211
  • Aizenman, J. and Sun, Y. (2012) “The Financial Crisis and Sizable International Reserves Depletion: From Fear of Floating to the Fear of Losing International Reserves?”, International Review of Economics and Finance, 24: 250–269. https://doi.org/10.1016/j.iref.2012.03.004
  • Aizenman, J. and Lee, J. (2007) “International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence”, Open Economies Review, 18(2): 191–214. https://doi.org/10.1007/s11079-007-9030-z
  • Aizenman, J. and Marion, N. (2003) “The High Demand for International Reserves in the Far East: What’s Going On?”, Journal of the Japanese and International Economies, 17(3): 370–400. https://doi.org/10.1016/S0889-1583(03)00008-X
  • Baker, S. R., Bloom, N., and Davis, S. J. (2016) “Measuring Economic Policy Uncertainty”, Quarterly Journal of Economics, 131(4): 1593–1636. https://doi.org/10.1093/qje/qjw024
  • Baltagi, B. H. (2021) Econometric Analysis of Panel Data, 6. Baskı, Springer. https://link.springer.com/book/10.1007/978-3-030-53953-5
  • Bank for International Settlements (2011) “Central Bank Reserves and Sovereign Risk”, BIS Papers, No. 58. https://www.bis.org/publ/bppdf/bispap58.htm
  • Becker, R., Enders, W., and Lee, J. (2006) “A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks”, Journal of Time Series Analysis, 27(3): 381–409. https://doi.org/10.1111/j.1467-9892.2006.00478.x
  • Beckmann, J. and Bettendorf, T. (2025) “Effects of Global Uncertainty on International Portfolio Flows”, Deutsche Bundesbank Monthly Report, October. https://www.bundesbank.de/resource/blob/xxxxx/monthly-report-october-2025-data.pdf
  • Breusch, T. S. and Pagan, A. R. (1980) “The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics”, Review of Economic Studies, 47(1): 239–253. https://doi.org/10.2307/2297111
  • Bussière, M., Cheng, G., Chinn, M. D., and Lisack, N. (2015) “For a Few Dollars More: Reserves and Growth in Times of Crises”, Journal of International Money and Finance, 52: 127–145. https://doi.org/10.1016/j.jimonfin.2014.11.008
  • Chudik, A. and Pesaran, M. H. (2015) “Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models with Weakly Exogenous Regressors”, Journal of Econometrics, 188(2): 393–420. https://doi.org/10.1016/j.jeconom.2015.03.007
  • Demir, F. and Ersan, O. (2017) “Economic Policy Uncertainty and Cash Holdings: Evidence from BRIC Countries”, Emerging Markets Review, 33: 189–200. https://doi.org/10.1016/j.ememar.2017.08.001
  • Driscoll, J. C. and Kraay, A. C. (1998) “Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data”, Review of Economics and Statistics, 80(4): 549–560. https://doi.org/10.1162/003465398557825
  • Dumitrescu, E. I. and Hurlin, C. (2012) “Testing for Granger Non-Causality in Heterogeneous Panels”, Economic Modelling, 29(4): 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
  • Enders, W. and Lee, J. (2012) “The Flexible Fourier Form and Dickey–Fuller Type Unit Root Tests”, Economics Letters, 117(1): 196–199. https://doi.org/10.1016/j.econlet.2012.04.081
  • Ghosh, A. R., Ostry, J. D., and Tsangarides, C. G. (2012) “Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets Since the 1980s”, IMF Economic Review, 60(2): 303–344. https://doi.org/10.5089/9781463933197.001
  • Gilal, A. A. and Ismail, N. A. (2025) “Economic Policy Uncertainty and Foreign Reserves: Empirical Evidence from BRIC Countries”, International Journal of Economics & Business Administration, 13(2): 3–23. https://ijeba.com/journal/882
  • González, A., Teräsvirta, T., and Van Dijk, D. (2005) “Panel Smooth Transition Regression Models”, Econometric Reviews, 24(3): 307–343. https://doi.org/10.1080/07474930500243019
  • Greenspan, A. (1999) “Currency Reserves and Debt”, World Bank Conference, Washington D.C. https://www.federalreserve.gov/boarddocs/speeches/1999/19990429.htm
  • Hansen, B. E. (1999) “Threshold Effects in Non-Dynamic Panels: Estimation, Testing, and Inference”, Journal of Econometrics, 93(2): 345–368. https://doi.org/10.1016/S0304-4076(99)00025-1
  • International Monetary Fund (2025) “Assessing Reserve Adequacy (ARA)”, IMF Data Mapper. https://www.imf.org/external/datamapper/Reserves_ARA@ARA , (20.12.2025)
  • International Monetary Fund (2016) “Guidance Note on the Assessment of Reserve Adequacy and Related Considerations”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • International Monetary Fund (2013) “Assessing Reserve Adequacy – Further Considerations”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • International Monetary Fund (2011) “Assessing Reserve Adequacy”, IMF Policy Paper. https://www.imf.org/en/Publications/Policy-Papers
  • Jeanne, O. and Rancière, R. (2011) “The Optimal Level of International Reserves for Emerging Market Countries: A New Formula and Some Applications”, Economic Journal, 121(555): 905–930. https://doi.org/10.1111/j.1468-0297.2011.02435.x
  • Kimball, M. S. (1990) “Precautionary Saving in the Small and in the Large”, Econometrica, 58(1): 53–73. https://doi.org/10.2307/2938330
  • Mishra, R. and Datta, A. (2020) “Policy Uncertainty and Foreign Exchange Reserves: Evidence from India”, Applied Economics Letters, 27(18): 1482–1487. https://doi.org/10.1080/13504851.2019.1696443
  • Obstfeld, M., Shambaugh, J. C., and Taylor, A. M. (2010) “Financial Stability, the Trilemma, and International Reserves”, American Economic Journal: Macroeconomics, 2(2): 57–94. https://doi.org/10.1257/mac.2.2.57
  • Pesaran, M. H. and Yamagata, T. (2008) “Testing Slope Homogeneity in Large Panels”, Journal of Econometrics, 142(1): 50–93. https://doi.org/10.1016/j.jeconom.2007.05.010
  • Pesaran, M. H. (2007) “A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence”, Journal of Applied Econometrics, 22(2): 265–312. https://doi.org/10.1002/jae.951
  • Pesaran, M. H. (2004) “General Diagnostic Tests for Cross Section Dependence in Panels”, CESifo Working Paper, No. 1229. https://www.cesifo.org/en/publikationen/2004/working-paper/general-diagnostic-tests-cross-section-dependence
  • Pesaran, M. H., Shin, Y., and Smith, R. J. (1999) “Pooled Mean Group Estimation of Dynamic Heterogeneous Panels”, Journal of the American Statistical Association, 94: 621–634. https://doi.org/10.1080/01621459.1999.10474156
  • Ramsey, J. B. (1969) “Tests for Specification Errors in Classical Linear Least Squares Regression Analysis”, Journal of the Royal Statistical Society: Series B, 31(2): 350–371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x
  • Rodrigues, P. M. M. and Taylor, A. M. R. (2012) “The Flexible Fourier Form and Local GLS De-Trending Unit Root Tests”, Oxford Bulletin of Economics and Statistics, 74(5): 736–759. https://doi.org/10.1111/j.1468-0084.2012.00710.x
  • Syed, Q. R. (2023) “Climate Policy Uncertainty and Its Impact on Energy Demand: An Empirical Evidence Using the Fourier Augmented ARDL Model”, Energy Policy, 168: 113–121. https://doi.org/10.1016/j.enpol.2022.113121
There are 37 citations in total.

Details

Primary Language English
Subjects Policy and Administration (Other)
Journal Section Research Article
Authors

Erhan Akardeniz 0000-0003-2269-8182

Submission Date November 3, 2025
Acceptance Date February 19, 2026
Publication Date March 21, 2026
DOI https://doi.org/10.11611/yead.1815956
IZ https://izlik.org/JA23EG85NH
Published in Issue Year 2026 Volume: 24 Issue: 1

Cite

APA Akardeniz, E. (2026). THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE. Journal of Management and Economics Research, 24(1), 295-315. https://doi.org/10.11611/yead.1815956
AMA 1.Akardeniz E. THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE. Journal of Management and Economics Research. 2026;24(1):295-315. doi:10.11611/yead.1815956
Chicago Akardeniz, Erhan. 2026. “THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE”. Journal of Management and Economics Research 24 (1): 295-315. https://doi.org/10.11611/yead.1815956.
EndNote Akardeniz E (March 1, 2026) THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE. Journal of Management and Economics Research 24 1 295–315.
IEEE [1]E. Akardeniz, “THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE”, Journal of Management and Economics Research, vol. 24, no. 1, pp. 295–315, Mar. 2026, doi: 10.11611/yead.1815956.
ISNAD Akardeniz, Erhan. “THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE”. Journal of Management and Economics Research 24/1 (March 1, 2026): 295-315. https://doi.org/10.11611/yead.1815956.
JAMA 1.Akardeniz E. THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE. Journal of Management and Economics Research. 2026;24:295–315.
MLA Akardeniz, Erhan. “THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE”. Journal of Management and Economics Research, vol. 24, no. 1, Mar. 2026, pp. 295-1, doi:10.11611/yead.1815956.
Vancouver 1.Erhan Akardeniz. THE IMPACT OF POLICY UNCERTAINTY ON CENTRAL BANK RESERVES: THE EXAMPLE OF THE FRAGILE FIVE. Journal of Management and Economics Research. 2026 Mar. 1;24(1):295-31. doi:10.11611/yead.1815956