Skip to main content

Research Repository

Advanced Search

Accumulation of Large Foreign Reserves in China: A Behavioural Perspective

Zhang, Z.; Chau, F.; Li, X.

Accumulation of Large Foreign Reserves in China: A Behavioural Perspective Thumbnail


Authors

X. Li



Abstract

The massive accumulation of foreign reserves by China has challenged the conventional thinking about prudent reserve management. This paper develops a behavioural model of optimal decision making under uncertainty to explain the observed Chinese reserve policy. Departing from the conventional approach to utility maximisation based on the agent’s rationality, this paper explicitly models the behaviour of Chinese central banker who is influenced by loss aversion and narrow framing. Embedding the cognitive biases into the precautionary savings approach to holding reserves, the paper shows the behavioural optimality of Chinese reserve build-up and provides a plausible explanation of the dynamics of reserve accumulation in China, hence help make sense of the puzzling Chinese reserve policy.

Citation

Zhang, Z., Chau, F., & Li, X. (2013). Accumulation of Large Foreign Reserves in China: A Behavioural Perspective. Economic Change and Restructuring, 46(1), 85-108. https://doi.org/10.1007/s10644-012-9136-1

Journal Article Type Article
Publication Date Mar 1, 2013
Deposit Date Feb 12, 2013
Publicly Available Date Mar 29, 2024
Journal Economic Change and Restructuring
Print ISSN 1573-9414
Electronic ISSN 1574-0277
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 46
Issue 1
Pages 85-108
DOI https://doi.org/10.1007/s10644-012-9136-1
Keywords Reserve accumulation, Precautionary savings, Behavioural finance, Loss aversion, Narrow framing, C61, F31, F43, G02.
Public URL https://durham-repository.worktribe.com/output/1466758

Files





You might also like



Downloadable Citations