The Demand for International Reserves in ASEAN-Five Economies: An Application of Bounds Testing Approach
Economists generally accept the proposition that the optimality level of holding international reserves is mandatory to ensure the stability of balance of payment. However, examining the determinants of international reserves is an important challenge not yet satisfactorily confronted by the profession in developing countries, especially ASEAN countries. Based on a dataset covering five ASEAN countries and using bounds testing approach proposed by Pesaran, et al. (2001), this paper provides strong evidence that long-run reserve demand in ASEAN-Five can be characterized as a stable function of imports, uncertainty and the opportunity cost of holding reserves with strong economies of scale.
Keywords: International Reserves, Imports, Opportunity Cost, Economies of Scale, Bound Test
Kim Lan Siah
Lecturer, Economics Unit, Faculty of Management, Multimedia University (MMU)
Chee Keong Choong
Senior Lecturer, Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman