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Exchange rate regime and demand for reserves: evidence from Kenya, Mexico and Philippines

Exchange rate regime and demand for reserves: evidence from Kenya, Mexico and Philippines
Exchange rate regime and demand for reserves: evidence from Kenya, Mexico and Philippines
This paper empirically investigates the demand for international reserves (and foreign exchange reserves) during fixed and floating exchange rates periods in three developing countries: Kenya, Mexico and Philippines. Based on theoretical models, three factors are identified as important for the demand of international reserves and foreign reserves: average propensity to import, volume of imports and variability of reserves. The paper employs the cointegration methodology and error correction method to investigate the relationships. Cointegration tests results indicate a reliable long-run stationary relationship between the international reserves (and foreign exchange reserves) and the stated explanatory variables across countries and sub-periods of fixed and clean float. The error correction results indicate causality from the explanatory variables to the reserves during both the short and long run. This is true during both the fixed and the floating periods.
international reserves, volatility, cointegration, exchange rate regimes
0923-7992
167-181
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Hasan, Mohammad
5d0edc25-d9e7-4705-a750-7c570cbe00d6
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Hasan, Mohammad
5d0edc25-d9e7-4705-a750-7c570cbe00d6

Choudhry, Taufiq and Hasan, Mohammad (2008) Exchange rate regime and demand for reserves: evidence from Kenya, Mexico and Philippines. Open Economies Review, 19 (2), 167-181. (doi:10.1007/s11079-007-9023-y).

Record type: Article

Abstract

This paper empirically investigates the demand for international reserves (and foreign exchange reserves) during fixed and floating exchange rates periods in three developing countries: Kenya, Mexico and Philippines. Based on theoretical models, three factors are identified as important for the demand of international reserves and foreign reserves: average propensity to import, volume of imports and variability of reserves. The paper employs the cointegration methodology and error correction method to investigate the relationships. Cointegration tests results indicate a reliable long-run stationary relationship between the international reserves (and foreign exchange reserves) and the stated explanatory variables across countries and sub-periods of fixed and clean float. The error correction results indicate causality from the explanatory variables to the reserves during both the short and long run. This is true during both the fixed and the floating periods.

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More information

Published date: April 2008
Keywords: international reserves, volatility, cointegration, exchange rate regimes

Identifiers

Local EPrints ID: 51607
URI: https://eprints.soton.ac.uk/id/eprint/51607
ISSN: 0923-7992
PURE UUID: 0e96a343-68d6-48c5-b1d9-1b803bb0bcc6

Catalogue record

Date deposited: 05 Jun 2008
Last modified: 13 Mar 2019 20:48

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Contributors

Author: Taufiq Choudhry
Author: Mohammad Hasan

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