The Research On The Foreign Exchange Reserves And The Determination Of Desired Level For China

Foreign exchange reserves which is regarded as an important indicator for a country'sexternal economic relations has become more and more important in regulating macroeconomicas the integration of the world economy and the development of international financialinnovation. The research on the demand for one country's foreign exchange reserves alsobecomes the focus for the domestic and international scholars.This paper recalled the main theoretical and methodological research on the demand forforeign exchange reserves in the domestic and international economists, abandoning the premiseassumption :"actual hold reserves is the desired reserves " which is often introduced in domestic.Established the dynamic adjustment analysis framework for the foreign exchange reserves, thatis the dynamic adjustment model to the demand for international reserves. and then based on thisframework using figures contrast ,charts analysis and unit root test ,co-integration techniquewhich are the modern econometric methods to analysis annual data for China in1960-2004.After setting up and estimating the demand function for foreign exchange reserves and thedemand function for money of China, we got the demand equation for foreign exchange reservesand the corresponding dynamic adjustment equation of China without monetarydisequilibrium .When we considered the monetary disequilibrium, we got the new demandequation for foreign exchange reserves and the corresponding dynamic adjustment equation.In contrast to the two dynamic adjustment equations ,we found the monetarydisequilibrium through the changes in the foreign reserves of their own adjustment speed havesignificant impact on the demand for foreign exchange reserves in China . According to thedemand equation for foreign exchange reserves with monetary disequilibrium ,we got the realdemand for foreign exchange reserves of china in 1980-2004, comparing with the actualholdings in 1990s, we got this conclusion : in most year of the 1990s, China's foreign exchangereserves was relative surplus. At last we made several policy recommendations.