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The Empirical Analysis of Demand for International Reserve of China

Author: PengLe
Tutor: WangXiangNing
School: University of Science and Technology of China
Course: Finance
Keywords: Foreign exchange reserves ADF test Cointegration Analysis Error correction model
CLC: F832.6
Type: Master's thesis
Year: 2009
Downloads: 298
Quote: 0
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Abstract


The end of February 2006, China's foreign exchange reserves totaled $ 853.7 billion, surpassed Japan for the first time, ranking first in the world. In late September 2008, reached a record $ 1.9056 trillion. The rapid growth of China's foreign exchange reserves caused by the extensive attention of scholars at home and abroad. Therefore, the number of foreign exchange reserves needs to naturally become the focus of attention of the academic and government sectors. In this study, using cointegration and error correction model analysis of influencing factors of the demand of the foreign exchange reserves of nearly 22 years in China. The results showed: the main factors affecting the foreign exchange reserves needs in the long-term gross domestic product (GDP), Openness and foreign debt risk, and foreign direct investment, balance of payments deteriorated and the exchange rate deteriorated its free; in the short-term external debt risk and exchange rate variation is the main factor affecting the foreign exchange reserves. Therefore, China should be the overall macroeconomic view, to further improve the RMB exchange rate and external debt portfolio management, foreign exchange reserves in order to achieve the scientific and rationalize development. The paper is organized as follows: The first chapter briefly reviews the basic theory of the demand of some of the foreign exchange reserves, including foreign exchange reserves, demand determines the theoretical and the modest scale of foreign exchange reserves needs theory. And demand of domestic scholars on China's foreign exchange reserves position. The second chapter describes the study foreign exchange reserves are now the main statistical methods and its principles. Including a single whole, the theory of cointegration, error correction model and Grange causality test. Chapter selected from an empirical perspective, the gross domestic product (GDP), the opening rate, foreign direct investment, balance of payments deteriorates, the exchange rate variation and foreign debt risk of these economic variables as explanatory variables. Through the cointegration regression analysis, to determine the foreign exchange reserves, demand and GDP, exchange rate variation, there is long-term stable relationship between the risk of external debt. Found that the gross domestic product (GDP), every 1% increase in the exchange rate variation and foreign debt risk will result in foreign exchange reserves growth in demand for 2.4662%, 0.2679% and 2.6085%, respectively, and the elasticity coefficient significantly. With foreign exchange reserves, the actual size of the GDP, exchange rate variation and foreign debt risk values ??into cointegration equation to predict the long-term equilibrium scale of foreign exchange reserves, and then through the exponential function to adjust foreign exchange reserves will be transferred back to the original value of the logarithmic form comparison. The results found that from 1994, the scale of China's foreign exchange reserves are almost always greater than the scale of foreign exchange reserves, demand theory. In order to verify that each variable exists causality Grange causality test results show that basically consistent with the results obtained with the previous cointegration analysis and error correction model the dynamic adjustment of foreign exchange reserves, short-term demand equation, foreign exchange reserves and foreign exchange reserves needs demand in the short term to reverse the previous period adjustments, adjust the rate of 48.98%. Chapter Summary This paper draws conclusions and made innovations and problems. The innovations include: the exchange rate deterioration of the treatment chosen polynomial method. And the inadequacies of the model: foreign direct investment in the data may not be a good description of the relationship between foreign exchange reserves needs, the amount of data is less than normal. Finally, the management of foreign exchange reserves to make a few suggestions.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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