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Demand For International Reserves in ASEAN-5 Economies

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  • Eliza, Nor
  • M., Azali
  • Law, Siong-Hook
  • Lee, Chin

Abstract

The ASEAN-5 economies were observed to increase their demand for international reserves after the 1997 Asian financial crisis. This was coincided with their consistent current account surplus during the same period. Thus, this study attempts to investigate the existence of long-run relationship between reserve demand and current account for the period of 1997-2005. The Autoregressive Distributed Lag (ARDL) bounds test approach as proposed by Pesaran, Shin, and Smith (2001) was employed, and the empirical results revealed that current account surplus leads to the rise in the demand for international reserves in Indonesia, Malaysia, and Singapore.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11735.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:11735

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Keywords: Bound Test; ARDL Approach; International Reserves; ASEAN-5;

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  1. Ramachandran, M., 2004. "The optimal level of international reserves: evidence for India," Economics Letters, Elsevier, Elsevier, vol. 83(3), pages 365-370, June.
  2. Ramachandran, M. & Srinivasan, Naveen, 2007. "Asymmetric exchange rate intervention and international reserve accumulation in India," Economics Letters, Elsevier, Elsevier, vol. 94(2), pages 259-265, February.
  3. Aizenman, Joshua & Lee, Yeonho & Rhee, Yeongseop, 2004. "International reserves management and capital mobility in a volatile world: Policy considerations and a case study of Korea," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt1867f7ng, Center for International Economics, UC Santa Cruz.
  4. Prabheesh, K P & Malathy, D & Madhumathi, R, 2007. "Demand for Foreign Exchange Reserves in India: A Co-integration Approach," MPRA Paper 13969, University Library of Munich, Germany.
  5. Huang, Tai-Hsin & Shen, Chung-Hua, 1999. "Applying the seasonal error correction model to the demand for international reserves in Taiwan," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(1), pages 107-131, January.
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  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  9. David F. Hendry & Neil R. Ericsson, 1990. "Modeling the demand for narrow money in the United Kingdom and the United States," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 383, Board of Governors of the Federal Reserve System (U.S.).
  10. Basant K. Kapur, 2007. "Capital Flows and Exchange Rate Volatility: Singapore’s Experience," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 575-608 National Bureau of Economic Research, Inc.
  11. Frenkel, Jacob A & Jovanovic, Boyan, 1981. "Optimal International Reserves: A Stochastic Framework," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(362), pages 507-14, June.
  12. Bardsen, Gunnar, 1989. "Estimation of Long Run Coefficients in Error Correction Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 51(3), pages 345-50, August.
  13. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  14. Eaton, Jonathan & Gersovitz, Mark, 1980. "LDC participation in international financial markets : Debt and reserves," Journal of Development Economics, Elsevier, Elsevier, vol. 7(1), pages 3-21, February.
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