Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially...

We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in...

Central banks around the world are increasingly exploring central bank digital currencies (CBDCs). This paper investigates the possible impacts of cross-border CBDCs on capital flows and financial stability in a simple open economy extension of a classical model of bank runs, augmented with the...