The demand for international foreign reserves of energy-exporting countries (Kuwait, Norway, Saudi Arabia, Venezuela, The Netherlands)

The two main theoretical approaches to explaining the demand for international reserves holdings are the buffer stock approach and the monetary approach. The buffer stock approach assumes optimizating behavior of central banks. They determine the level of reserves by equating the marginal cost and benefit of holding reserves. The monetary approach considers the balance of payments as an essentially monetary phenomenon. Analysis of reserves---part of base money---should take place within the content of an explicit model of the demand for money.; The existing studies of the demand for reserves have focused on only one or the other of these approaches. These studies suffer from many deficiencies. First, they take a cross-section approach, which disregards country-specific idiosyncrasies. Second, they ignore the high capital mobility to be considered in the optimization behavior. Finally, they do not utilize the feature of cointegration in the time series to account for short-run and long-run information in the estimated model.; This thesis tests three alternative models of the determinants of international reserves: a model derived from the monetary approach to the balance of payments, a model derived from the buffer stock approach to the reserves (derived from Keynesian assumptions about the macroeconomy), and a composite model based upon the buffer stock approach that allows for an indirect test of the monetary approach to explain international reserves. The tests are carried out for five energy-exporting countries: Kuwait, the Netherlands, Norway, Saudi Arabia, and Venezuela are examined in this thesis on an individual basis.; The results support the buffer model hypothesis, indicating that the movement of foreign reserves responds negatively to an increase in imports and opportunity costs and positively to an increase in uncertainty and the propensity to import. However, the core of the monetary approach hypothesis has also been found to exert an influense on reserves. A disequilibrium in the money market significantly affects the level of the reserves in each country. The impact differs in magnitude from country to country depending on the degree of sterilization and the exchange rate regime.