Governments Accumulate Reserves Post-Currency Crises: Explaining the Push for Policy Insurance

📌 Context: Economic policy shifts after currency crises often vary, despite similar events occurring elsewhere.

🔍 Methods & Theory: Using theory of political accountability, this analysis examines how past crises shape future governments' decisions to build economic defenses. The argument is that government changes post-crisis provide crucial information about handling financial risks.

💡 Findings: Countries significantly increase foreign exchange reserves after a major currency crisis if it brought in a new political regime—especially when the change occurred during times where accountability wasn't expected. Importantly, governments prioritize this action only if they believe reserve sales are effective tools for prevention.

⭐ Significance: This research provides insight into why nations differ so much in their approaches to preventing future financial disasters following similar past crises.