부산대학교 도서관

On the basis of Frenkel’s demand function, this study investigates what factors affect China's foreign exchange reserves. Using the quarterly data from 1986 to 2009, first, we estimate an equation of determination of foreign exchange reserves and evaluate it. We find that the theoretical predictions are in general consistent with the actual data. Second, we examine dynamic properties of foreign exchange reserves. For that, we perform cointegration test and find that China's foreign exchange reserves are consistent with long-run equilibrium relationship with the associated macroeconomic variables. This implies that China does not hold excess reserves contrary to popular wisdom. We also find that external debts and foreign direct investment exert long-lasting impact into the reserves whereas propensity to import and opportunity cost has only temporary impact on them.