The demand for international reserves: the Philippine case
Date
1980
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Abstract
A country's official reserves are used for precautionary purposes to maintain some degree of stability in the exchange rate when its balance of payments is in deficit. This study addresses itself to the problem of the Philippine monetary authorities in maintaining an adequate level of reserves. In relation to this, estimates of the reserves demand function are tested for its validity and stability during the period 1963-1978.
Two types of reserves demand formulations are estimated. The first uses long-run explanatory variables such as money supply, net foreign exchange holdings of commercial banks, imports, and the opportunity cost of holding reserves. The second is called a stochastic formulation because it makes use of a measure of the variability of the balance of payments as an explanatory variable. These demand formulations are used to assess the adequacy of the official reserves holdings of the Central Bank from 1962 to 1978.