Determinants of the "Optimal" Foreign Reserve Level based on "Benefit-Maximization"

2013 Fiscal Year Final Research Report

• Project/Area Number: 23530294
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Applied economics
• Research Institution: Waseda University
• Principal Investigator: AKIBA Hiroya 早稲田大学, 政治経済学術院, 教授 (60138576)
• Project Period (FY): 2011 – 2013
• Keywords: 国際経済学

Research Abstract

Since foreign reserves are one of the savings, I have searched the conditions for the positive level. However, since the initial level is negative as the solution of an intertemporal maximization problem, I have searched for the resolution. I found that the theory of loss aversion could be used for resolution within the optimal consumption-saving problem under uncertainty. Invoking it needs to evaluate loss aversion, relative risk aversion, and the crisis probability. With these in mind, I found that a positive level of foreign reserve is held for both countries with high probability of positive and negative output shock after evaluating the initial utility surface in the 3 dimensional space. I have been trying to generalize this conclusion.