Demand For International Reserves Theoretical Research

In recent years, China foreign exchange reserve keeps continually the fast growth tendency. The amount of foreign exchange reserve breaks through one thousands billion US dollars In 2006, surpasses Japan to become the most quantitative country of foreign exchange reserve holding in the world. Therefore, the research regarding the foreign exchange reserve demand quantity becomes naturally the focal point which the current academic circles and the government department pay attention to. In order to provide the help and instruction for the research about foreign exchange reserve scale, and provide the basis and coordinates for the formulation foreign exchange reserve policy; we must regard and strengthen to research the international reserve demand theory, especially the newest front theory. But the research and application of the international reserve demand theory is very slow in the current domestic academic circles. The major part research is the simple introduction or application about the international reserve demand theory of Western 80's before. There are the big deviation between the research conclusion and the reality existence, so these suggestions and countermeasures lack strongly the practical feasibility. Therefore, the demand theory research about international reserve holding not only has the significant theory value, but also has the strong practical significance.Chapter I introduces the background, significance and current situation of the reserve demand theory research and the research method, fundamental frame and possible innovation of this article. This is basic premise of researching international reserve demand, and also is the first question which this article must first expound.First, we carry out thorough analysis on the background of theory study about international reserve holding, and point out the demand studying of international reserve has the strong practical significance. Second, we induce and summarize the relevant research document of the demand theory of international reserve holding, make clear the science pedigree and China mainland research status quo of the international reserve demand theory. It has provided a route chart to others'document retrieval, has provided a measuring system to the article research. Finally, we set forth the research method, fundamental frame and possible innovation of this article.Chapter II introduce and discuss the elementary theory about international reserve demand, this is the logic starting point which this article studies. The article, firstly, clears and narrates the definition, function and constitution of the international reserve. This is basic premise of researching international reserve demand, and also is the first question which this article must first expound. The article, secondly, has carried on the thorough analysis and comparison to the balanced level and the most optimal level of the international reserve demand. The most optimal level of international reserve holding is the ideal target which a country wish holds the quantity of international reserve. It only is influenced unilaterally by the international reserve demand. All logic, frame as well as arrangement of the article are expanded by this concept. Thirdly, the demand determining factor and most optimal level of the traditional international reserve theory has carried on the review and induction in the chapter. On the one hand, the international reserve demand mainly is influenced and restricted by economical scale, foreign degree of openness, opportunity cost, international payment balance change, exchange rate system, as well as factor and so on foreign loan risk. On the other hand, we usually use the import ratio law, the international payment balance difference theory, the money supply determinism, the qualitative analytic method, the cost- income analytic method as well as the square root rule to measure the most optimal level of the international reserve demand.Chapter III systematically and thoroughly induces, refines, innovates and develops the newest progress of the demand determining factor theory and the most superior scale theory. This is one of the important and difficult points of the article research.1) Uses two theoretical models to explain the mechanism and degree that home and international politics factor influence the international reserve holding. First, the author has comprehensively introduced and systemically induced, for the first time in the domestic academic circles, the domestic politics factor model of the international reserve demand which had been constructed by Aizenman and Marion in 2004. It confirmed the domestic political situation turbulence, political corruption, governmental financial type as well as incumbent party tenure in office had the remarkable function and influence to the quantity of international reserve demand. Second, the author has alone constructed a theoretical model about international politics military factor influencing international reserve demand holding, which has explained clearly the intrinsic logic and mechanism that international politics military factor influences the quantity of international reserve holding, which confirmed non-Christianity civilizations'and high international politics military risk country hold more quantitative international reserves than Christianity civilizations'and low international politics military risk country.2) Refines the dynamic optimization theory of the international reserve holding and its currency principle method on the basis of massive research of the domestic and foreign scholar's research. First, the article relates in detail the early international reserve partial adjustment model in order to expound the basic logic and principle of dynamic optimization theory. When you conduct the regression analysis, you cannot directly use the actual quantity of international reserve to replace the demand quantity, but should consider the process and speed which the actual quantity adjusts the most superior demand quantity in a short term. Afterwards, the co-integration equation and the error correction model of the international reserve, which explained clearly the modern method and the main steps in the real diagnosis research, are elaborated in the fourth section of the chapter. Finally, the basic principle and intrinsic logic of the currency method of the dynamic optimization theory, which considered the impact of the supply and demand of domestic currency to the international reserve demand, is elaborated in this section.Chapter IV researches the process of foreign exchange reserve dynamic optimization in China mainland using the currency method of international reserve dynamic optimization theory. It is one of the biggest difficulties and ultimate foothold of the article.Considering the influence of the supply and demand of domestic currency, the author use the Co-integration and ECM theory to analyze the dynamic optimization process of China foreign exchange reserve under the condition of the non-balanced money market. Through establishing the long-term balanced and the short-term dynamic adjustment equations of China foreign exchange reserve and currency demand, the author estimated the adjustment speed of China foreign exchange reserve and currency individually, and analysis the correlation among the demand of foreign exchange reserve, the supply and demand of domestic currency as well as other related economical variables. Finally, several viewpoints and proposes has been put forward on the basis of the conclusion of quantitative research mentioned above.