On the exchange-rate elasticity of the demand for international reserves: Some evidence from industrial countries

Summary and Conclusion In this paper we tried to investigate the supposition that a change in exchange rate lowers the demand for international reserves. This goal was achieved by incorporating the real effective exchange rate into a standard real reserve demand equation from the literature. The model was estimated for a sample of 13 countries for which the effective exchange rate was available, using pooled quarterly data over the 1973-1985 period. The empirical results revealed that a change in exchange rate indeed reduces the demand for reserves supporting the theoretical arguments of the previous studies.