INTERNATIONAL RESERVES ACCUMULATION AND THE FOREIGN CAPITAL FLOW

Abstract

Empirical observations show the inverse relationship between country risk and the rate of international reserves accumulation in Brazil. From this, we propose a theoretical model explaining the link between the accumulation of international reserves and the foreign capital flow in the country. Numerical simulations performed from this model show that stylized fact. Finally, we make the nonlinear fitting between the foreign capital flow and the rate of loss of international reserves for several periods in the interval January 1995 to December 2010. The results show that a parsimonious policy of international reserves accumulation is an efficient strategy for fundraising and therefore protection against external fluctuations.