What Determines Egypt’s Demand for Foreign Reserves?
DOI:
https://doi.org/10.35516/jjes.v11i1.1454Abstract
Objective: The main objective of this paper is to identify the determinants of the demand for foreign reserves in Egypt.
Methods: The buffer stock model, quarter-century data spanning over the past 20 years, and Auto-Regressive Distributed Lag (ARDL) regression are all employed to estimate Egypt's demand function for foreign reserves, assess its stability, and predict how swiftly it may change if the underlying Cointegrated connection is disturbed.
Results: The results reveal that exports and imports have elasticities of demand for foreign reserves of 1.16 and -3.69, respectively. Moreover, Egypt's foreign reserve assets have notably increased due to foreign direct investment and foreign portfolio investment growth. Lastly, the demand function for foreign reserves is steady, and in the event of a shock, it returns to its steady state in less than two years.
Conclusion: To improve Egypt's foreign reserve holdings, policymakers should concentrate on measures encouraging exports and attracting foreign investment.
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