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The Optimal Demand For Foreign Exchange Reserves In Pakistan

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  • JALIL, Abdul
  • BOKHARI, Sheharyar

Abstract

Using monthly data on foreign exchange reserves from June 1995 through June 2005, we find that in line with other country-specific studies the opportunity cost of holding reserves played a greater role than reserve volatility in determining the level of reserves in Pakistan. Our finding is in contrast with the hypothesis of increased capital mobility that is commonly set forth in explaining the precautionary motive for reserve holdings. As also pointed by Ramachandran (2004), this result could perhaps be attributed to the fact that capital outflow in Pakistan (as also in India) is not as free as capital inflow and a large part of the recent reserve accumulation is due to non-debt reserve inflows.

Suggested Citation

  • JALIL, Abdul & BOKHARI, Sheharyar, 2008. "The Optimal Demand For Foreign Exchange Reserves In Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(1), pages 33-48.
    • Handle: RePEc:eaa:ijaeqs:v:5:y2008:i:1_3
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    File URL: http://www.usc.es/economet/reviews/ijaeqs513.pdf
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    References listed on IDEAS

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    1. Antonio Francisco Silva Jr. & Érica Domingos da Silva, 2004. "Optimal International Reserves Holdings In Emerging Markets Economies: The Brazilian Case," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 078, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September.
    3. Karim Khan & Eatzaz Ahmed, 2005. "The Demand for International Reserves: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 939-957.
    4. Ramachandran, M., 2004. "The optimal level of international reserves: evidence for India," Economics Letters, Elsevier, vol. 83(3), pages 365-370, June.
    5. Kelly, Michael G, 1970. "The Demand for International Reserves," American Economic Review, American Economic Association, vol. 60(4), pages 655-667, September.
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    Cited by:

    1. Samih Antoine Azar & Wael Aboukhodor, 2017. "Foreign Exchange Reserves and the Macro-economy in the GCC Countries," Accounting and Finance Research, Sciedu Press, vol. 6(3), pages 1-72, August.
    2. Nebiye, Sinem & Yamak, Nebiye, 2014. "Demand for International Reserves in Turkey," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(52), pages 63-76, June.

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    More about this item

    Keywords

    Foreign Exchange Reserves; Optimal Demand; GARCH; Pakistan;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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