An Empirical Test of the Demand for International Reserves
The demand for international reserves (henceforth called reserves) has been extensively studied by various researchers (see, for example, Bahmani-Oskooee, 1985; Edwards, 1984; 1985; Heller and Khan, 1978; Iyoha, 1976; Lizondo and Mathieson, 1987; Williamson, 1973) in the past and in recent years. A country desires to hold reserves for a variety of reasons. One primary reason is to keep reserves as a buffer stock against a possible instability in its balance of payments (BOP). This can be considered as a precautionary motive for holding reserves. Other reasons for holding reserves arise mainly from a country's desire to carry out international transactions effectively (transaction motive), to enhance its ability to borrow in the global financial markets, and to improve a country's confidence in its ability to meet external obligations.
KeywordsARIMA Model International Reserve Aggregation Bias Foreign Reserve International Monetary System
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