Authors: Hsin-Hong, Kang and Hsin-Chuan, Chou
The purpose of this study was to discuss the impact of macro economic variables and major events on foreign exchange reserves in China. The major direction of the research was to determine the key factors of macro economics which affect China’s foreign exchange reserves. The research was additionally designed to create dummy variables into the regression model in order to examine the correlation between foreign exchange reserves and major events, including avian influenza, the managed floating exchange rate system adopted by China, the fifteen trade policies for Taiwan proposed by China and RMB transactions released to foreign banks by China. This study used monthly data from June 2003 to August 2007. The research results shows that the mega events including avian influenza, the managed floating exchange rate system adopted by China and RMB transactions released by China to foreign banks had a negative impact on China’s foreign exchange reserves.
Keywords: Foreign exchange reserve; Macro economic variable; Dummy variable; Mega events; Regression analysis