Czech paper aims to overcome ‘model uncertainty' over motives behind international reserves

Use of Bayesian model averaging is ‘a complete novelty'


A working paper from two economists at the Czech National Bank uses Bayesian model averaging to answer the ‘model uncertainty' problem of the competing motives for holding international reserves, finding that trade openness and the broad-money-to-GDP ratio are the key determinants.

In International Reserves: Facing Model Uncertainty, Soňa Benecká and Luboš Komárek use data for 104 countries in 1999–2010 – including all countries with available data, to capture a mix of different determinants

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