Chinese Demand For International Reserves Empirical Study

The demand for international reserves attracts economists' attention for a very long time. Firstly this thesis reviews the empirical thesis of demand for international reserves and providing a descriptive analysis about the issues of the demand of international reserves. Then this thesis summarizes all kinds of different popular theories of demand for international reserves. (including the theory of single factor,the theory of regression analysis,the theory of the monetary model and the theory of many factors of the international reserves)In the empirical section, this thesis uses yearly data of China of the important macroeconomic variables from 1984 to 2007 to test regression analysis by the combination of many factors model and the theory of the proportion analysis. First it analyzes the unit root test of the variables which are tested to satisfy the condition of the cointegration analysis about many factors by integrated of 1.Then it tests the cointegration analysis and confirms that there is the relationship of long term among variables. Last it tests the data by error correction model. The empirical results that there is positive correlation between GDP and the international reserves and between the difference between import and export ,and the elasticity is 2.68,0.0000075 respectively; there is negative correlation between M₂, real effective exchange rate , foreign direct investment, MPI and the international reserves, and the elasticity is -0.46, -0.43 ,-0.65, -0.59 respectively. From the result of analysis, the factors of international reserves of China are GDP, M₂, real effective exchange rate, foreign direct investment and MPI. This result is consistent with the situation of economic of China. But the difference between import and export has little short-term effect on international reserves of China. Further, we can get the long-term elasticity by calculation. It is 0.8362 that shows that he difference between import and export has long-term effect on international reserves of China.