OPEC's asset demand function—An empirical study
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This paper considered a simple and standard model of the demand for U.S. securities by one of its major purchasers, OPEC. By comparing the coefficients of the interest, exchange and inflation rate variables to that of the income variable, we found that both the income and the substitution effect play an important role in determining the Middle Eastern members' demand for United States securities. For the remaining members of OPEC, the income effect seems to play a far less important role. Since the Middle Eastern members are the prevalent force in OPEC, the results for all OPEC members more closely resemble this group than the non-Middle Eastern group.
The adjusted coefficients of determination clearly indicate that the economic variables incorporated into our model are able to explain variations in the purchase of U.S. securities by the oil exporting countries quite well. However, we believe that a model incorporating the financial sectors of the U.S., OECD (without U.S.) and OPEC would be more complete. We are in the process of formulating such a model and we hope to report our results in due course. Given the policy importance of these questions, such a model has a good deal of merit.
KeywordsPublic Finance Rate Variable Financial Sector Demand Function Good Deal
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