The Empirical Analysis Of Demand For International Reserve Of China

By the end of February 2006, China's international reserves has been 853.7 billion U.S. dollars, more than Japan, the most in the world for the first time. At the end of 2008, China's international reserves reached a highest record of 1.9056 trillion U.S. dollars. The high speed growth of China's international reserves caused widespread concern of scholars in China and abroad. Therefore, the study of the demand for international reserves has become the focus of the attention of academic circles and government departments. In this thesis, we analyzed the demand for international reserve of China in the nearly 22 years. The results showed that: in the long-term gross domestic product, the opening of economic and the impact of external debt risk are major factors of the demand for international reserves, and foreign direct investment, balance of payments and exchange rate variation had no effect; in the short-term external debt risk and exchange rate variation are major factors of the demand for international reserves. We should further improve the RMB exchange rate as well as the dynamic management of foreign debt portfolio, and in order to achieve the rationalization of scientific development of international reserves from the overall macroeconomic. The paper is organized as follows:Chapter I first reviewed some of the basic theory of demand for international reserves briefly, including the determine theory of international reserves and the theory of appropriate scale of demand for international reserves. Then we introduced China's scholars' research of the demand for China's international reserves.Chapter II introduced the statistical methods and principles of international reserves, which are now used. There are some which are commonly used: co-integration theory, error correction model and Grange causality test.Chapter III selected the gross domestic product, opening to the outside world, the foreign direct investment, balance of payments deteriorated, the risk of exchange rate variation and foreign debt of these economic variables as explanatory variables from the empirical point of view. Through the co-integration and regression analysis, we determine the demand for international reserves has long-term stable relationship with GDP, the exchange rate deterioration, the risk of external debt. For every1% growth of Gross domestic product, the risk of exchange rate variation and foreign debt will lead to the growth of demand for the international reserves increase 2.4662%, 0.2679% and 2.6085% , and coefficients of elasticity are significantly. Then we use the long-term co-integration equation to calculate the value of demand for international reserve of China. Finally, by comparing the value of demand for international reserve and the exact value of international reserve of China, we found that the exact value of international reserve are almost always bigger than the value of demand for international reserve in theory after 1994.Grange causality test has been done in order to find out whether there is some causality relationship between the variables, and the results show the same with the previous co-integration analysis. Through the error correction model, we found dynamic adjustment of short-term equation, adjustment rate of the demand for international reserves in the short term is 48.98%. Chapter IV summarizes the conclusions of this paper and the major innovations made: the polynomial method of the exchange rate variation . As well as the inadequacies of the model: foreign direct investment data may not be a good description of the relationship between demand and international reserves, limited number of data. Finally, make a few suggestions about the management of international reserves.