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An Empirical Test of the Demand for International Reserves

In: The Changing Environment of International Financial Markets

Author

Listed:
  • Anisul M. Islam
  • Moosa Khan
  • Muhammad M. Islam

Abstract

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.

Suggested Citation

  • Anisul M. Islam & Moosa Khan & Muhammad M. Islam, 1994. "An Empirical Test of the Demand for International Reserves," Palgrave Macmillan Books, in: Dilip K. Ghosh & Edgar Ortiz (ed.), The Changing Environment of International Financial Markets, chapter 7, pages 83-94, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-23161-4_7
    DOI: 10.1007/978-1-349-23161-4_7
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    Cited by:

    1. Hee-Ryang Ra, 2008. "Dilution of Opportunity Cost Effect on the Demand for International Reserves in the High Reserve Era," Korean Economic Review, Korean Economic Association, vol. 24, pages 151-171.

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