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This paper examines the cyclicality of international reserves (IR) and estimates their macro-stabilizing effects. Whether acting as a traditional buffer stock or a modern macroprudential
policy tool, IR play a crucial role in countering external forces and mitigating the volatility they induce. Accordingly, managing IR in a counter-cyclical manner, such as accumulating them in
good times and decumulating in bad times, is advisable. However, our analysis of data from 177 countries reveals that such counter-cyclical IR practices are more often exceptions than rules. Moreover, we find that the volatility-mitigating effects of these reserves depend significantly on the exchange rate flexibility. Specifically, they exert significant offsetting effects on output
volatility in countries with flexible exchange rate arrangements.
