Modelling China's demand for international reserves.

This paper employs a version of the error correction model to investigate China's demand for international reserves in the period 1980:1 to 1990:4. China's officially quoted reserves included the net foreign exchange balance of the country's foreign exchange bank (Bank of China) during this period, but the reserves truly owned by the state were substantially smaller than the officially quoted reserves. We test the behaviour of both concepts and their relevance for decision making of reserve holdings. Factors derived under the traditional inventory models as well as disturbances from the domestic markets and debt repayment ability were considered. [ABSTRACT FROM AUTHOR]