https://macropaperwarehouse.com/authors/mauricio-barbosa-alves/Mauricio Barbosa-AlvesHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/international-reserve-management-under-rollover-crises/https://macropaperwarehouse.com/papers/international-reserve-management-under-rollover-crises/<p>The paper extends the Cole-Kehoe (2000) sovereign rollover crisis model to include international reserves and derives the joint optimal management of sovereign debt and reserves in a small open economy subject to potential creditor coordination failure. The central results are: (i) reserves are only valuable as a rollover-crisis defense when debt has sufficiently long maturity; (ii) the optimal exit path from the crisis zone requires holding zero reserves while gradually reducing debt, then jumping simultaneously to the optimal safe pair (a*, b*) by issuing new debt while accumulating reserves; (iii) this seemingly paradoxical debt-financed reserve accumulation lowers bond spreads because it moves the economy fully into the safe zone.</p>