Liquidity management of foreign exchange reserves in continuous time |
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| Affiliation: | 1. Shanghai Lixin University of Commerce, Shanghai 201620, China;2. Shanghai Stock Exchange, Shanghai 200120, China;3. School of Management, Zhejiang University, Hangzhou 310058, China;1. School of Management, University of Chinese Academy of Sciences, Beijing 100190, China;2. Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen 361005 Fujian, China;1. College of Economics, Zhejiang University, 38 Zheda Road, Xihu District, Hangzhou 310027, China;2. College of Economics, Zhejiang University, 10–6076 Yuquan Campus Zhejiang University, 38 Zheda Road, Xihu District, Hangzhou 310027, China;3. College of Economics, Zhejiang University, 8–362 Yuquan Campus Zhejiang University, 38 Zheda Road, Xihu District, Hangzhou 310027, China;1. Faculty of Economics and Management of Nabeul, ENVIE, University of Carthage, Tunisia and Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE), Canada;2. Laval University, Department of Agricultural Economics and Consumer Science, CREATE and Egg Industry Economic Research Chair, Canada;3. University of Carthage, Department of Industrial Economics, Polytechnic School of Tunisia, LEGI and Faculty of Economics and Management of Nabeul, Tunisia |
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| Abstract: | In order to cope with daily foreign currency exchange payments or trades and avoid liquidity crisis, central banks need to maintain the liquidity of foreign exchange reserves. In this paper, we develop a Foreign Exchange Reserves Liquidity Management (FERLM) model based on stochastic process by introducing a foreign exchange factor. We also generate a feasible target proportion of the liquidity reserve to total foreign exchange reserves, by seeking the balance between capital gains of holding foreign exchange reserves and losses of liquidity insufficiency. |
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