A Research On China’s Appropriate Foreign Exchange Reserves And Risk Warning

Foreign exchange reserves is a symbol of a country’s wealth and strength,it is animportant means of balance of a country’s international balance of payments, it also takethe responsibility to maintain exchange rate stable.Under the premise of the RMB is notyet the currency which can circulate all over the world,we must hold a certain amount offoreign exchange reserves to prepare from time to time, dialectical materialism think thatevery coin has two sides, less foreign exchange reserves make us unable to meet thenormal use of foreign exchange needs,but too many holders will waste resources andincrease our cost of ownership.How to measure and alert early China’s appropriate foreign exchange reserves is theproblem to be solved in this paper in the context of the rapid growth of China’s foreignexchange reserves.This paper is based on the classic measurement of the regression modeland signal model,using dynamic adjustment method, Monte Carlo simulation as well as thenon-parametric kernel density estimation methods to research the measurement and earlywarning of the appropriate scale of China’s foreign exchange reserves.for this purpose, theimprovement and innovation I do are: First，use dynamically adjust model to have anempirical analysis of China’s foreign exchange reserves,this paper uses cointegrationtheory to build a China’s foreign exchange reserves’ demand model and an error correctionmodel, on this basis, establish a dynamic adjustment model which containing the first orderlag of China’s foreign exchange reserves，in order to have an empirical analysis to ourforeign exchange reserves and make our calculations more valuable;Second,we propose ameasurement of the risk event probability of the unknown distribution,using the newdevelopments in the non-parametric kernel density estimation method to characterize theprobability density distribution of the data,and then apply two recursive algorithm tocalculate the probability,estimate risk event probability by computertechnology;Third,build the signal modle which describe the risk warning indicators gobeyond the color of the level of risk,and divide the risk ranking and set different corloursprobality of foreign exchange reserves risk exceed the alert line.In this paper, we use econometric models, computer programming, statisticalprobability calculations and non-parametric estimation methods to measure and earlywarning of the approriate scale of China’s foreign exchange reserves,highlighting theforeign exchange reserves research’s multi-disciplinary, quantifiable and achievable characteristics,which provide the basis of the method and feasibility of reference forChina’s government foreign exchange reserves policy.