New Indicators Developed for Assessing Optimal Reserve Level in Emerging Market Economies: An Empirical Analysis for Turkey

Abstract

With the 2008-2009 Global Financial Crisis, developing a new metric, which takes into account the dynamics of particularly developing and low-income countries, seemed necessary, as a result of traditional methods used to determine the reserve adequacy being partially inadequate and often giving conflicting signals. The aim of this study is to examine the reserve adequacy for Turkey by using the new metric developed by the International Monetary Fund (IMF) to respond to the need of developing a new measure to evaluate reserve adequacy. The analysis covers the period from 2005:Q4 through 2019:Q4. In the analysis, the RALS (Residual Augmented Least Squares) ADF unit root test proposed by Im et al (2014) is employed. Our results support the evidence of reserve adequacy for Turkey in the relevant period. On the other hand, the reserves do not seem to have a stable trend.