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Reserves and Risk: Evidence from China

Author

Listed:
  • Rasmus Fatum

    (University of Alberta)

  • Takahiro Hattori

    (Hitotsubashi University)

  • Yohei Yamamoto

    (Hitotsubashi University)

Abstract
We consider if the Chinese accumulation of reserves is associated with unintended consequences in the form of increased private sector risk taking. Using sovereign credit default swap spreads and stock index prices as indicators of risk taking we provide evidence to suggest that as reserve holdings increase, so does the willingness of the private sector to take on more risk. This is an important finding that adds credence to the suggestion that insurance through costly reserves, to be used in the event of a crisis, may lead to private sector actions that in and of themselves make it more likely that this insurance will be used.

Suggested Citation

  • Rasmus Fatum & Takahiro Hattori & Yohei Yamamoto, 2020. "Reserves and Risk: Evidence from China," GRU Working Paper Series GRU_2020_013, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_013
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International reserves; risk taking; China;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    This paper has been announced in the following NEP Reports:

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