The Empirical Analysis On International Reserve Demand

International Reserve studied by many scholars at home and abroad is a hot topic.The scale of one country′s International Reserve is used as a scientific index inweighting the risk of debt and the power of stabilizing the exchange rate. Some extentof International Reserve has great significance for reinforcing nationalmacro-regulation and preventing from international financial crises. The essay studiesthe relationship between International Reserve demand and Real Effective ExchangeRate, Money Supply and Ex-Import trade. The model set up in the essay employsmonthly data of relevant variables between 1998-2005. First, by using Johansencointegration theory to test their long-term relationship, it shows that InternationalReserve demand has a positive cointegration relationship with Money Supply andEx-Import trade, and a negative relationship with Real Effective Exchange Rate. Then,the author builds a short-term dynamic equation by using ECM (Error CorrectionModel), which shows that International Reserve demand has a positive cointegrationrelationship with all the three variables. Thus, the essay summarizes that differentlong-term and short-term goals should be set up to manage the International Reservedemand, and implement varied policy on demand level in different times.