The square-root law,uncertainty and international reserves under alternative regimes: Canadian experience, 1950–1976

A transactions-precautionary model of demand for international reserves is developed and tested against Canadian data. The results indicate that: (i) the demand for reserves is characterized by economies of scale with respect to the volume of transactions that are invariant to the exchange rate regime, but (ii) structural change took the form of a relatively larger responsiveness of reserves holdings under fixed rates to a measure of permanent variability in transactions.