Demand for Foreign Exchange Reserves in India: A Co-integration Approach
Using cointegraion and vector error correction approach, we estimate India’s demand for foreign exchange reserves over the period 1983:1-2005:1. Our results establish that the ratio imports to GDP, the ratio of broad money to GDP,exchange rate flexibility and interest rate differential determine India’s long-run reserves demand function. Our empirical results show that reserve accumulation in India is highly sensitive to capital account vulnerability and less sensitive to its opportunity cost. The speed of adjustment coefficient of vector error correction model suggests that Reserve Bank of India has to engage in more active reserve management practices.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marc-André Gosselin & Nicolas Parent, 2005. "An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia," Staff Working Papers 05-38, Bank of Canada.
- Sebastian Edwards, 1953.
"The Demand for International Reserves and Monetary Equilibrium: Some Evidence from Developing Countries,"
UCLA Economics Working Papers
293, UCLA Department of Economics.
- Edwards, Sebastian, 1984. "The Demand for International Reserves and Monetary Equilibrium: Some Evidence from Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 495-500, August.
- Sebastian Edwards, 1984. "The Demand for International Reserves and Monetary Equilibrium: Some Evidence From Developing Countries," NBER Working Papers 1307, National Bureau of Economic Research, Inc.
- Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- 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, vol. 18(1), pages 107-131, January.
- Renu Kohli, 2004. "Capital Account Liberalisation: Empirical Evidence and Policy Issues II," International Finance 0405009, EconWPA.
- Clark, Peter B, 1970. "Optimum International Reserves and the Speed of Adjustment," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 356-76, March-Apr.
- Grubel, Herbert G, 1971. "The Demand for International Reserves: A Critical Review of the Literature," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1148-66, December.
- John F. O. Bilson & Jacob A. Frenkel, 1979. "Dynamic Adjustment and the Demand for International Reserves," NBER Working Papers 0407, National Bureau of Economic Research, Inc.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Ramachandran, M., 2004. "The optimal level of international reserves: evidence for India," Economics Letters, Elsevier, vol. 83(3), pages 365-370, June.
- Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
- Ford, J L & Huang, Guobo, 1994. "The Demand for International Reserves in China: An ECM Model with Domestic Monetary Disequilibrium," Economica, London School of Economics and Political Science, vol. 61(243), pages 379-97, August.
- Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, vol. 41(161), pages 14-24, February.
- Kelly, Michael G, 1970. "The Demand for International Reserves," American Economic Review, American Economic Association, vol. 60(4), pages 655-67, September.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13969. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.